3.05.2018

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.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry_100x100 1
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.

Related Articles / Insights & Opinion

Updated Subcontract Agreement: SA-2017
The SA-2009 form of Subcontract Agreement is commonly used in the construction industry. It has undergone a review and a new SA-2017 form has been produced.
3.07.2018 Posted in Construction Law & Health & Safety Law
Distribution Agreements – 6 Key Considerations
While the exact nature and terms of a distribution agreement will vary between industries and jurisdictions, these 6 issues will always be important.
28.06.2018 Posted in Corporate & Commercial law
Continued Importance of IP Protection for Manufacturers
The Ministry of Business, Innovation and Employment (MBIE) has recently released a report which identified key trends and challenges for the manufacturing sector (that report can be accessed here). Th...
28.06.2018 Posted in Corporate & Commercial law
CONSTRUCTION LAW UPDATE – JUNE 2018
Recent Construction Law Decisions and Developments in New Zealand
18.06.2018 Posted in Construction Law
Updated Standard Consultancy Agreements
Two of the most commonly used standard agreements to engage consultants are the ACENZ / Engineering New Zealand (formerly IPENZ) Short Form Agreement (“SFA”) and the Conditions of Contract for Consultancy Services (“CCCS”).
5.06.2018 Posted in Construction Law
Managing Employees’ Mental Health Issues
Ministry of Health statistics confirm that during 2016, 169,454 people accessed mental health services in New Zealand. The law of averages suggests that most workplaces will – to a lesser or greater degree – be affected at some time by an employee’s mental health issue.
31.05.2018 Posted in Employment Law & Health & Safety Law
Managing Medical Incapacity: Enough To Make You Feel Sick?
Managers and HR practitioners often tell us that dealing with employees who are genuinely too sick or injured to work is one of their least favourite tasks. Frankly, we can see why.
31.05.2018 Posted in Employment Law
Send us an enquiry
For expert legal advice, please complete the form below or call us on (09) 375 8700.
  • This field is for validation purposes and should be left unchanged.