Family Business ~ Insight | We would like to introduce you to The Board

At Covisory Partners we are frequently called upon to provide business advice to clients which is sometimes outside the scope of what we feel comfortable doing.  As a consequence of this over the years we have built up a team of outside advisors and specialists that we often call on in these situations.

Recently this resulted in a more formalisation of this arrangement with the incorporation of a company called The Board Limited.  Take a look at www.theboardltd.com to read all about our new initiative.

The Board Limited comprises of four high powered individuals (myself included) who have significant business experience.  We each bring a different skill set to the table and the aim is for whatever issues that keep a business owner awake at night, the Board can provide a person or team of people that they can talk to and help them to work through the issues.

The types of areas that The Board is able to handle and advise on includes the following:

  1. Succession planning for a business – whether you should keep, sell or do something else with your business.
  2. How to effectively grow the leadership capability within your business.
  3. What growth opportunities should you pursue in your business.
  4. How to finance growth activities within your business.
  5. Organisational review.
  6. Strategic planning.
  7. Recruitment of boards and CEOs for companies where owners wish to step out but maintain ownership and governance.
  8. Governance reviews.

 

So if you cannot sleep at night and you are troubled by what to do with your business or issues affecting it, The Board is the solution for you.  Take a look at the website and get in touch.

Family Business ~ Insight | Succession: The Good and the Bad

Over the past fortnight we have worked on two succession planning issues for families where a business is to be transferred to one child out of four in each case.

In the first situation the family is doing this as an open discussion and making sure that the child actually wants to acquire the business and understands the financial ramifications.  It is important that it is the child’s wish to acquire the business and not that of their parents which is forced upon them or imputed to them.

In that case, the child’s principle concern is financial, ie what happens if they cannot maintain the business as a result so as to enable the repayment of the debt to the parent?  This can be handled so that perhaps the debt is limited recourse, but the negative is that then removes a valuable asset for the other children.

Typically, the family business represents a very high percentage of the wealth of Mum and Dad when we come to look at succession issues.  If they want to transfer it to some but not all of their children, then it is important that equality between the children is considered.

In the second case it involved a farm as opposed to a family business but the logic is the same.  In this case the child that worked the land had got into the ear of Mum and Dad’s independent trustee who also happened to be his chartered accountant.  The parents, owners of the land and farm operation, were convinced to sell it to the child at a very concessional price with extremely concessional repayment provisions including that no repayment of the principal was to be made for 10 years.  While there was interest to be charged, again it was concessional.

A large part of the value of the farm was being transferred to a child without equal consideration for the other children.

At the last minute, Mum and Dad did realise there could be an issue and arranged a family conference where the whole exercise was sprung upon the other 3 unsuspecting children who to say the least were somewhat gob smacked.

When you are dealing with children and potentially transferring an asset to one of them and not the others, the key concern is to ensure that there is a perception of equality and fairness.  Even if there is to be some benefit for the child, in recognition of past service, endeavour or the like, it is very important that this is discussed openly and in a proper forum within the family or it has the potential to divide the family and poison relationships for the future.

Succession will continue to be one of the principal issues for families owning businesses over the next 10 years.  With many baby boomers reaching retirement age, what they do with their business is increasingly weighing upon their minds and keeping them awake at night.  Do they sell the business to third parties?  Do they transfer it to children?  What should they do with it?

There is never a right answer to this but what is important is work through a process so the family can see the options and understand the implications of each.  As always, we are here to assist.

Family Business ~ Insight | We’ve grown! Let us introduce Covisory Trust Services

Covisory Trust brings together two New Zealand trust experts Nigel Smith and Marcus Diprose. Collectively they have a wealth of experience providing independent trust advice and trustee services both domestically and offshore. Covisory Trust offers Independent Trustee Services, Trust Formation, Insurance Trust Services, Formation of NZ Limited Partnerships and Look Through Companies and Independent Trust Advice.

In our opinion current case law and proposed changes to New Zealand Trust law will put increasing pressure on trustee’s to do their job correctly and conversely be exposed to more risk. The Covisory team specialise in this area and we are well equipped to deal with your specific needs.

Our services will include:
  1. Independent Trustee Services

a. We will provide independent trustees services to a wide range of New Zealand domestic and foreign trusts.

(i) Full administration services to ensure the decisions of the trustees, and other parties to the trust, are:

* Properly documented;

* Record keeping is up-to-date;

* Accurate and timely reporting is maintained and communicated to all parties to the trust.

b. Act as a Court Appointed Trustee.

c. Have an independent Trustee Company for New Zealand Domestic Trusts (Covisory Trust Limited) and for New Zealand Foreign Trusts (Covisory (NZ) Trust Limited) which can act as a trustee of a Trust.

2.  Trust Formation

a. We provide full formation services for New Zealand trusts. Includes:

(i) Initial client meetings;

(ii) Drafting of all trust documentation based on the instruction of the client;

3.  Insurance Trust Services

Private businesses should always have some form of insurance coverage to help facilitate the sale and purchase of shares upon the death or permanent disability of a director/shareholder.

(i) We work with insurance brokers to set up buy/sell agreements and provide trustee services to deploy the insurance proceeds as per the provisions of the trust deed.

  1. Formation of New Zealand Limited Partnerships (NZLP) and Look Through Companies (LTC)

a. We provide full formation and administration services for both NZLP and LTCs including acting as a New Zealand resident General Partner or Director.

5.  Independent Advice

a. Full Review of Trust Structures due to changes to family dynamics or law changes.

(i) Including advice and recommendations on what steps to take on a go forward basis.

Recent projects the CTSL team have been involved in include:
  • Advice and formation of a New Zealand foreign trust structure to hold intellectual property;
  • Family restructuring; including the consolidation of a number of existing trusts, resettlement of assets, additions of beneficiaries and associated advice;
  • Advice to a New Zealand private charitable trust as to how distributions can be made under the terms of the trust and development of a checklist for the trustees to assist in vetting applications received for distributions.

 

If you would like to find out more about Covisory Trust Services please visit us at https://covisory.com/trust-services/ or talk to Nigel Smith today on +64 9 307 1777 (nigel@covisory.com) or Marcus Diprose on +64 9 307 1777 (marcus@covisory.com ).

Family Business ~ Insight | Ground Breaking Matrimonial Law Decision – What impact does it have?

The recent Court of Appeal decision in the Clayton v Clayton decision is ground breaking to say the very least.  While the decision is likely to be appealed to the Supreme Court because of the significance of it, it effectively busts trusts.

The term “Trust busting” is used when there is an attempt to penetrate a Trust structure and have the assets held by the Trust declared by the Courts to be owned personally by an individual.  The end result is that the Trust’s assets are then considered part of that individual’s net worth and are available to former spouses/partners with valid claims against that individual.

In its judgement of the Clayton v Clayton case the Court of Appeal has stated that the right to appoint and remove trustees is in itself property and a valuable asset of the appointor.  This means that that right has to be valued and the Court of Appeal found that the value of the right was equal to the net assets of the trust.  Therefore the trust’s assets were property of the person holding the power of appointment.

The significance of this is that for many individuals who have created trusts either during or subsequent to relationships, the assets in those trusts are now likely to be relationship property and subject to claim by their spouses.  In a single statement, the Court of Appeal has busted open the vast majority of trusts in New Zealand to future matrimonial claim and the 50/50 division of assets with their former spouse.

As noted, it is likely that the decision will be appealed to the Supreme Court. It will be very interesting so see whether their view differs.

In the meanwhile, we recommend that if in doubt you obtain advice immediately and that, more importantly, before entering into an a relationship or at worst within 3 years of entering into one, make sure that you get a properly executed pre-nuptial agreement as these still provide the best protection at the moment.

With the administration of trusts under the spot light we cannot stress the importance to obtain the right advice and set up the right trust structure to demonstrate that the management of the trust has a genuine intention to assist its beneficiaries.

The Covisory team specialise in this area and we are well equipped to deal with your specific needs. With the establishment of Covisory Trust Services Limited in 2014 we are well placed to assist you with all your trust administration, formation and advice needs.

We are in a position to provide an independent Trustee Company for New Zealand Domestic Trusts (Covisory Trust Limited) and for New Zealand Foreign Trusts (Covisory (NZ) Trust Limited) which act as a trustee of the Trust.

We work with you to ensure that all trustees are actively involved in all decisions of the trust, and that the trustees have given due consideration to the best interests of the beneficiaries in any decision made and that each Trustee understands the implications for each decision made.  We will ensure that all resolutions are documented, record keeping is up to date and accurate reporting is maintained.

If you would like to find out more about Covisory Trust Services please visit us at https://covisory.com/trust-services/ or talk to Nigel Smith today on +64 9 307 1777 (nigel@covisory.com) or Marcus Diprose on +64 9 307 1777 (marcus@covisory.com ).

Family Business ~ Insight | New Resident Director Requirements Finalised

As of 1st May 2015 new rules applying to the governance, registration and reconstruction of companies in New Zealand will be introduced by the Companies Amendment Act (No 4) 2014. One of the aims of the Act is to assist with the prevention of the misuse of New Zealand companies. It strengthens the rules around the incorporation of New Zealand limited liability companies increasing corporate transparency and accountability.

From the 1st May 2015 all new New Zealand incorporated companies will need to have a director who:

• lives in New Zealand or
• lives in an “enforcement country” (An enforcement country is one that can enforce New Zealand judgements imposing regulatory regime criminal fines, which include those arising under the principal Act) and is a director of a company registered in that enforcement country.

o The Companies Act 1993 Amendment Regulations (no 2) 2014 has confirmed Australia as the only enforcement country.

For existing companies, incorporated prior to 1st May 2015, there is a further 180 days to comply with this requirement. Accordingly, such companies will need to comply on or before 27 October 2015.

In addition there are now additional information requirements imposed on all directors. From 1st May 2015 Directors, for all new New Zealand incorporated companies, will need to provide upon incorporation or upon their appointment their:

• Full Name
• Residential Address
• Place of Birth [not made publically available]
• Date of Birth [not made publically available]

For companies registered prior to 1st May 2015 this new information will need to be gathered and provided to the Registrar as part of the filing of the Company annual return.
For companies incorporated overseas but registered in New Zealand (operating as a branch) these resident director requirements do not apply.

How to be prepared

For existing Companies the grace period does provide some flexibility. All companies need to check their compliance with the new requirements. Consideration needs to begin now on what changes will be needed in the board structure well in advance of the expiry of the grace period.
The non-compliance with these new requirements will be grounds for the removal of the company from the Companies Register.

How can Covisory Partners Help?

If you have any concerns about the impact of these changes or would like to discuss any aspect of these new requirements please contact us.