The Anti-Money Laundering and Countering Financing of Terrorism Act 2009

Why we need to ask you for your information
We want to advise you of law changes that will apply to lawyers and our clients from 1 July 2018. Recent changes to this law (called the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 or “the AML Act” in short) means that from 1 July 2018, lawyers will be required to have measures in place to help them detect money laundering and the financing of terrorism, as it is considered that law firms and the services they offer could be utilised by those involved in criminal activities.

As a law firm, we need to assess the potential risk we face from money launderers and those financing terrorism and must identify potentially suspicious activities. To make that assessment, we need to obtain and verify information from existing and potential clients before we are able to perform legal services for you. This is known as “client due diligence”.

What will we need from you?
Client due diligence requires law firms to undertake certain background checks before providing services to clients. We must also take reasonable steps to make sure that the information we receive from clients is correct, and so we will need to obtain and verify certain information from you. This information includes:
• your full name;
• your date of birth; and
• your address.

To confirm these details, we will need documents that include photo identification like your passport or current drivers licence and also documents that show your address such as a recent bank account statement or utility bill.

If you are seeing us about a trust or company, we will need to collect information relating to the trust or company and also the people associated with it (such as directors, shareholders and trustees). We will identify these people where possible, but we will be relying on you to help us in identifying all persons onr whom we need to carry out client due diligence. We will make this as easy as possible by providing you with detailed guidance on what we need.

We may also need to ask you for further information about the nature and purpose of the proposed work you are asking us to do for you. Also information confirming the source of funds or source of wealth for a transaction will also be necessary to meet the legal requirements.

If you cannot provide the required information
If you are unable to provide the information we require, it is likely that we will not be able to act for you. Even if you have been a long-standing client, we are still required under the AML Act to gather documentation to verify your identity.

Before we start working for you, we will let you know what information we need, and what documents you need to provide us.

If you have any queries or concerns about these new requirements, please do not hesitate to contact us.

How the Residential Care Subsidy can affect your Asset Planning – What you need to know?

The Residential Care Subsidy (“Subsidy”) is becoming increasingly topical as New Zealand’s 65+ population is projected to increase from 15% in 2016 to over 25% by 2068. The growth in this population will increase the number of Subsidy applications for financial assistance for long-term residential care in a rest home or hospital (“Care”). Despite the predicted growth in applications, many New Zealanders are not aware that their current asset planning has the potential to affect the outcome of a Subsidy application significantly. In light of this, advice surrounding asset planning in consideration of a Subsidy application is essential.

The Ministry of Social Development (“MSD”) determines Subsidy applications. When considering an application, they will conduct a financial means assessment to determine whether the applicant qualifies under the prescribed eligibility thresholds. This includes both an asset and an income assessment.

Before the applicant undertakes the income assessment, MSD will first assess whether they qualify under the asset assessment (“Assessment”). The asset thresholds for the Subsidy are as follows:

  1. A single applicant or applicants that have a partner in Care: The total value of their assets must not exceed $224,654.00 including the value of the family home and vehicle;
  2. Applicants who have a partner that is not in Care can elect to be assessed under either of the following thresholds:
  3. Their assets must not exceed $123,025.00 (not including the value of the family home and vehicle); or
  4. The total value of all their assets (family home and vehicle included) must not exceed $224,654.00.

The Gifting Provisions

MSD implemented gifting thresholds to prevent the giving away of assets with the purpose of attempting to qualify under the asset thresholds for the Subsidy.

Gifting thresholds apply to gifting commonly, i.e. birthday gifts, and gifting undertaken to a Family Trust (“Trust”). Gifting to a Trust is when an individual (“Settlor(s)”) who owns assets such as houses, cash and shares, sells these assets into a Trust. In return, the Trust owes a debt back to the Settlor(s). The debts are then “forgiven” by the Settlor(s) through a process called gifting.

The MSD gifting thresholds are:

  • Five years before applying for the Subsidy each person can gift up to $6,000.00 each annually. In this case, those in a qualifying relationship under the Property (Relationship) Act 1976 (“relationship”) may gift $6,000.00 each.
  • Beyond five years before the Subsidy application, a couple or individual can gift up to $27,000.00 annually. In this case, those in a relationship may gift up to $12,500.00 each.

Gifting that falls under the prescribed gifting thresholds will not be considered in the Assessment. However, if an applicant has sold an asset into a Trust that exceeds the gifting threshold, MSD will consider the value of the asset that exceeds the gifting thresholds as a personal asset. For example, an applicant sells their house valued at $300,000.00 to their Trust in 2011 and gifts annually until 2016; they apply for the Subsidy in 2017. MSD will subtract the value of the prescribed gifting being $27,000.00 in 2011 and $6,000 annually until 2016. The remaining $243,000.00 will be considered a personal asset under the Assessment. The applicant would not qualify for the Subsidy in this instance.

subsidy

Please see diagram below which offers a visual aid to the implementation of the MSD gifting thresholds:

If the same applicant had a partner who was not in Care, it may have been more beneficial for the applicant to hold the property as a personal asset. If the house was a personal asset, in this case, they could be considered under the eligibility threshold which excludes the value of the family home and vehicle if they chose. The applicant would qualify for the Subsidy in this instance.

Please note MSD will only consider gifting to a Trust that has been completed and will not take into account any entitled gifting that has not been completed.

Recommendations:

  1. Plan in advance. If a Subsidy application is likely, and you own a trust; implement a consistent gifting regime so that you can take advantage of MSD’s prescribed gifting thresholds.
  2. If you already have a trust or are considering forming a trust and may apply for the Subsidy, consider seeking legal advice on your position, including whether you could consider selling your home out of your Trust to meet the Assessment.

Please note that this article only covers aspects of a Subsidy application. For more comprehensive advice, please seek legal counsel.

Law Update: Trading on Easter Sunday

Easter Sunday is not a public holiday, yet most businesses used to have to be closed on this particular day.  However, changes to the Shop Trading Hours Act 1990 (the “Act”) that came into effect in August 2016 mean that all territorial authorities (city and district councils) now have the power to have a local Easter Sunday shop trading policy to permit shops to open on Easter Sunday in areas comprising the whole or part(s) of an authority’s district.  At least 25 of the 67 local councils in the country have already passed bylaws allowing shops to open on Easter Sunday.

The changes to the Act stipulate that employers who plan to open on Easter Sunday must notify their employees of their right to refuse to work on Easter Sunday (“Notice”).  The Notice itself may be in the form of a letter or memo delivered in person, or by email or via group email or in a way that is specified in the employment agreement (“Agreement”).  Notice must be provided to the employee between four and eight weeks in advance of the relevant Easter Sunday.  The employer is required to repeat this practise each year they would like an employee to work on Easter Sunday.

In the event an employee has commenced employment within four weeks of the relevant Easter Sunday, the employer is required to give this employee Notice as close to the start date of their employment as possible.

Please note that the process described above cannot simply be written into an Agreement.  New legislation makes any provision in an Agreement which requires an employee to work or be available to accept work on Easter Sunday, unenforceable.

If a business is prohibited from operating on Easter Sunday (due to the relevant territorial authority not having a local policy or the business falling outside the existing exemption categories) but they would still like their employees to work on Easter Sunday, for instance, to stack shelves or do a stock take, they are still required to follow the practice of written notification as would have been done if the business had been open to the public for the day.

Employees who have received Notice and intend to exercise their right to refuse to work are required to inform their employer by a notice in writing within 14 days of the date they received the Notice.  This can be by letter or email or in a way specified in their Agreement.

Where an employee has started work within 14 days prior to the relevant Easter Sunday and has received Notice  and wants to refuse to work, that employee must give the employer their notice as soon as possible after receiving the Notice from the employer.

If the employee does not follow these notice requirements, and their Agreement has a clause stating that they can be required to work on Easter Sunday, the employer can require them to work.

If the employer does not follow the notice requirements and requires an employee to work on Easter Sunday, their actions are likely to be viewed as compulsion and would expose them to a personal grievance claim by the employee.

Scenarios where the employer would be likely to be deemed to have compelled an employee to work include instances where:

  1. They have added working on an Easter Sunday as a condition of the continuing employment of an employee;
  2. They have unfairly influenced the shop employee to try to convince them to work on an Easter Sunday; or
  3. They have required an employee to work on Easter Sunday without giving them the correct Notice as prescribed by the Act.

Employers are barred from treating their employees adversely for exercising their right to refuse to work. Examples of treating an employee adversely may be not offering an employee the same working conditions compared with another employee in similar circumstances, or dismissing or retiring an employee.

If an employee thinks that they have been treated adversely by the employer because they refused to work on Easter Sunday, they can raise a personal grievance claim against them.

If you are an employer and need guidance on the Easter Trading laws, we recommend you seek advice from a lawyer.

Pier Law Christmas Holiday Hours 2017/2018

New Brighton office

Closes 12:00pm on Friday 22 December 2017 and reopens again at 8:30am on Monday 15 January 2018.

 

Kaiapoi office

Closes at 12:00pm on Friday 22 December 2017 and reopens again at 8:30am on Monday 8 January 2018.

 

Styx Mill office

Closes at 12:00pm on Friday 22 December 2017 and reopens again at 8:30am on Monday 15 January 2018.

 

Pier Law wish you all a Merry Christmas, Happy New Year and safe travels.

 

For any emergencies during this period please contact Caroline Davey on 021 296 6229.

Alternative Dispute Resolution Series: How It can help You – Mediation in Employment Disputes

Alternative Dispute Resolution (“ADR”) methods are alternatives to going directly to court. Using ADR methods instead of pursuing the matter in court is usually more cost effective for all the parties involved, takes less time to resolve the dispute, and also relieves the court of cases they believe can be resolved between the parties without court assistance.  This particular article will focus on mediation in the context of employment law and form a part of our ADR article series which will include articles on formal/informal negotiation and arbitration over the next two newsletters.

Mediation is essentially a voluntary process where an independent person (a “mediator”) assists the parties attending the mediation. This typically involves an employee and employer in an employment dispute, working through legal and emotional issues and developing solutions together to repair the employment relationship problems in a semi-formal and confidential environment.

Attending mediation is not like attending court as you are not under oath and are not cross-examined. Mediation requires the employee and employer (“the parties”) to attend the mediation, or it cannot proceed. Each party is entitled to bring representation and a support person to the mediation. At the beginning of the mediation, the mediator will outline the process of the mediation and ask the parties if they have any questions about the process.  During the mediation, the mediator will ask each party questions to identify and refine the issues. The mediator will give each party the opportunity to speak; interruptions are not permitted. If the parties are not able to adhere to this rule, the mediator may put each party in separate rooms and talk to each party individually to attempt to reach a resolution.

Anything said during mediation and all documents prepared for the mediation, including the terms of the resolution, if one occurs, are confidential. Because of this, what happens in mediation may not be able to be used as evidence in the Employment Relations Authority (“ERA”) or Employment Court. Confidentiality encourages the parties to be honest and forthcoming with their information to increase the chances of reaching a resolution.

When preparing for mediation, the parties are encouraged to prepare written statements, accounts of events, and collate any evidence and documents such as texts or emails to support their position. To get the most out of mediation parties are encouraged to:

  1. Listen to the other parties’ point of view, even if they do not agree;
  2. Acknowledge anything they may have done differently or better;
  3. Be honest and open;
  4. Have an open mind for resolutions; and
  5. Be willing to bend a little to reach an agreement.

Even if a resolution is not reached between the parties, they can request the mediator to recommend a non-binding solution under section 149A of the Act that the parties can consider. The mediator will make a written recommendation. The recommendation will include a date when the recommendation will become binding; the parties may consider accepting or rejecting the recommendation. Please note that if either party does not reject the recommendation before the specified date, it will become a full and final settlement and enforceable.

The parties also have the option of requesting a binding recommendation under section 150 of the Act.

Some advantages of resolving the dispute at mediation are:

  1. The cost is significantly less than hearing the dispute in court; and
  2. Mediation lets the parties have a degree of control over the agreement reached.

The disadvantages of mediation are that it may not result in a resolution, in which case the process will add to the legal costs.

Where the mediator feels that mediation is unlikely to produce a resolution, the mediator will usually conclude the mediation. The parties’ options at this point are to refer the matter to arbitration or the ERA or to stop pursuing the matter altogether.

If you are an employer or an employee and facing this situation, it is best to seek legal advice.

Employees – what are we allowed?

When asking Kiwis what their entitlements are when it comes to annual leave, holidays and resignation, the responses are generally vague.  Government statistics show that over 50% of working Kiwis have held their current employment position for less than 18 months, therefore, it is imperative for them to be familiar with employment law and employee rights.

Resigning

An Employment Agreement (“Agreement”) generally allows for employees to resign at any point in employment given they provide notice of resignation (“Notice”).  Notice can be given in the manner specified in the Agreement or in writing at a minimum.

When resigning there are various options available; however, for the purposes of this article, two options are discussed in detail: Gardening leave, or an Agreement.

Firstly, employees may take what is often known as Garden Leave.  Garden Leave allows for employees to be bound by their employment obligations and be paid as normal, whilst not undertaking work for the remainder of their Notice.

Granting Garden Leave requires mutual agreement by the employee and employer, although this agreement may be given under the Agreement.  Gardening Leave is often used where employers wish to restrict the departing employee’s access to clients or confidential information.

Secondly, an Agreement can be reached between the employee and employer to terminate employment immediately rather than at the expiry of the Notice.  If an employee does leave prior to the Notice period finishing, without the consent of the employer, the employer is entitled to seek damages or losses in the Employment Relations Authority or Employment Court.  These damages may include the costs of hiring additional staff for the period of the Notice or the loss of work opportunities due to the lack of staff available.

In light of the potential repercussions outlined above, it is imperative that any agreement of this nature is documented in writing.

Final Pay

An employee is entitled to request their final pay on the last day of work rather than the following payday.

The final pay must include:

  • All hours worked since the last payday until the end of employment;
  • Any annual holidays, public and alternative holidays accrued; and
  • Any additional lump sum or other payments owing which may be included in the Agreement or negotiated as part of leaving.

If the final pay does not include the bulleted points above, employees are encouraged to, in the first instance, seek any entitlements in arrears from their employer. If a dispute arises, other options available include making a claim for a breach under the Agreement or the Employment Relations Act 2000. In the event of such a dispute, it is recommended to seek legal advice.

Holidays

Under the Holidays Act 2003, employees in New Zealand are entitled to a minimum of 4 weeks paid annual leave (“Leave”) per year with the opportunity to take at least 2 of the 4 weeks Leave continuously. Unless otherwise agreed, leave entitlements are subject to the employee working 12 months for the same employer.

Leave pay must be the greater of the ordinary weekly pay or the average weekly earnings over a 12-month period, prior to the Leave.  The latter may be more relevant for employees who work on a commission basis or non-periodic schedules.

If an employee has worked for a 12-month period for the same employer, the employee may agree with their employer to either:

  • Take all Leave accrued that year; or
  • Take a portion of Leave accrued as soon as possible and carry over the remaining Leave into the next year; or
  • Be compensated financially for up to one week of Leave.

On resignation, if an employee has not reached 12 months of employment; they are still entitled to payment for annual holidays being calculated at 8% of their gross earnings during employment.

Employees are entitled to request unpaid leave in addition to their leave entitlements.

Summary

It is recommended that before resigning from a position, the Agreement’s terms and conditions are read and understood. Understanding your entitlements and the right to request or demand an act or information as an employee is tremendously beneficial. This knowledge provides protection and ensures employees are informed, and treated fairly by their employer.

If you have any questions or if you have any employment issues you would like to discuss with a Solicitor, contact us.

Wacky Christmas Laws and Practises

In the Spirit of Christmas, here are some strange practises and wacky Christmas laws from around the world:

  • In England, it was illegal to eat mince pies on Christmas Day from 1653 to 1658;
  • In America, Christmas was banned from 1659 to 1681;
  • In Caracas, Venezuela, on Christmas Day, the roads are closed, so people roller skate around the city; and
  • On Christmas Eve at noon, the Declaration of Christmas Peace is read in a formal ceremony in South Finland which states that any behaviour which jeopardises the joy of the holiday will be met with the full force of Finnish law.

New Zealand’s laws are not as wacky; however, the following is worth a mention. Christmas Day was not considered a public holiday until the Arbitration Act 1894, and the Holidays Act 1910 implemented the legal entitlement to take Christmas Day off.

Quirky Commonwealth Laws

Legislation does not always keep up with society so archaic but quirky laws of the Commonwealth remain on the statute books as shown in the examples below.

  1. United Kingdom:
  2. Under the metropolitan Police Act 1839 it is illegal to beat or shake any carpet or rug in the street. However beating or shaking a doormat is allowed before 8am; and
  3. Under the Salmon Act 1986 it is illegal to handle salmon in suspicious circumstances.
  4. Australia:
  5. The Summary Offences Act 1966 states that it is an offence to fly a kite or play a game in a public place “to the annoyance of another person”; and
  6. The Marketing of Potatoes Act 1946 states that it is illegal for a distributor of potatoes to be in possession of more than 50kg of potatoes that are sourced from a person or organisation other than the Potato Marketing Corporation.

It is apparent that the world moves on and people forget to clean up the statute books. Because repealing these laws does not seem to be a priority, these quirky laws seem to be here to stay.

The Corporate Veil

Section 15 of the Companies Act 1993 (“Act”) states that a company has a legal personality in its own right and is separate from its shareholders. This is a principle known as the Salomon principle, originating from the case of Salomon v A Salomon & Co Ltd.  The Salomon principle provides that a company is essentially regarded as a legal person separate from its directors, shareholders, employees and agents.  This means as a separate legal entity, a company can be sued in its own name and own assets separately from its shareholders.

The corporate veil is drawn from the Salomon principle which separates the rights and duties of the company from the rights and duties of the shareholders and directors.  Essentially, the corporate veil is a metaphoric veil with the company on one side of it and its directors and shareholders on the other and liability does not pass through.

The corporate veil does not provide protection to its shareholders and directors for their personal conduct or allow companies to be used for sham transactions. Accordingly, the courts may lift or pierce the corporate veil.

The corporate veil and Salomon principle were applied in Lee v Lee’s Air Farming Ltd. The Court ruled that although Lee was the controlling shareholder, sole director and chief pilot of Lee’s Air Farming Ltd, he was also considered an employee of the company and thus the company was a separate legal entity, even though Lee’s Air Farming Ltd was essentially a ‘one-man entity’.  This ruling created the opportunity for the corporate veil to be misused and has since been regulated against by imposing reckless trading provisions.

Lifting the corporate veil

The corporate veil can be lifted by the courts if its presence would create a substantial injustice.  This is the process used to look behind the corporate façade and identify the true nature of a transaction.

The corporate veil may be lifted in a number of circumstances, for example where a subsidiary company is in liquidation in the context of a group of companies as illustrated in Steel & Tube Holdings Ltd v Lewis Holdings Ltd.  The subsidiary company was placed into liquidation and the plaintiff sought the debt owed by the subsidiary from the group of companies rather than the subsidiary as a separate entity.  The Court of Appeal agreed with this approach as the subsidiary was not run as a separate legal entity.  Some of the factors the Court considered were that the directors of the subsidiary managed the subsidiary as officers of the parent company and did not hold separate board meetings for the subsidiary.  Technically, the subsidiary was a separate legal entity but it was not managed as a separate entity.  Accordingly, the Court lifted the corporate veil to pool the assets of the related companies.  The courts may not always apply this approach to groups of companies but this case identifies the importance of ensuring each entity within a group of companies is managed as a separate legal entity.

Piercing the corporate veil

The Courts may pierce the corporate veil and remove the protection of the Salomon principle to prohibit fraud. This was evident in Gilford Motor Co Ltd v Horne where a managing director agreed not to engage with his former employer’s customers but proceeded to do so through a newly formed company.  The courts pierced the corporate veil to reveal the sham transactions occurring behind the façade of the company.

Generally, the courts are reluctant to pierce the corporate veil to protect creditors in the absence of fraud.  However, where reckless trading takes place by directors, s 135 of the Act allows for the veil to be pierced.

In the case of tax evasion or unauthorised tax avoidance, the courts may look past the Salomon principle, pierce the corporate veil and declare the company a sham.

The courts will only lift or pierce the veil where an inequitable situation may be occurring behind the corporate façade based on the facts of each case.  The corporate veil is vital for the legitimate use of the corporate structure and the protection of shareholders and directors and thus, by its very existence, promotes the playing field for taking commercial risks.

Cloud Storage

The idea of cloud storage has become more pertinent over recent years given the exponential advancement of technology. More businesses endeavour to have more ‘paper-less’ environments with the view to creating more efficient, not to mention tidier, storage systems. ‘Cloud storage’ or ‘cloud computing’ was defined by the United States Department of Commerce National Institute of Standards and Technology as a model for enabling convenient network access to a shared pool of resources, including networks, storage and applications, that can be accessed with minimal service provider contact.

Types of cloud storage

There are many different cloud storage models which each carry different risks. These include, but are not limited to, private cloud, community cloud and public cloud.  Private cloud is where the cloud infrastructure provides for the exclusive use by a single organisation e.g. Cisco.  Community cloud is for the use by a specific community of organisations that share the same mission e.g. Google Apps.  Both the private and community clouds may be owned and managed by the organisation, a third party or mixture of both and exist on or off premises.  Public cloud is for the open use by the general public and is typically owned and operated by a government department or a business e.g. Amazon.

Benefits of cloud storage

Some of the benefits for investing in cloud storage include reliable backup storage, more storage capacity, flexibility, economies of scale, more efficient professional services, reduced IT costs, fewer hardware write-offs, better quality servers, and reduced risk of losing physical files during natural disasters as has occurred in the Christchurch earthquakes.

However, with these benefits come a number of risks.

Risks of cloud storage

Client confidentiality is a core concept, for example, within the legal industry ,a lawyer has a duty to protect and to hold in strict confidence all information concerning a client’s business and affairs under the Lawyers and Conveyancers Act 2006 and the Privacy Act 1993.   Generally, this is one of the major factors for some businesses being reluctant to implement cloud storage systems.  There have been a number of unfortunate instances where private information has been disclosed; for example, in February 2015 the United States Internal Revenue Service was hacked whereby personal information of 334,000 accounts was unlawfully accessed through the online tax system.

Potentially, a cloud storage provider could have access to client information or even sell stored information to unauthorised persons.  With cloud storage having no geographical boundaries, the relevant and applicable legal jurisdiction can become blurred, particularly in the context of overseas third party cloud storage providers.  Cloud storage providers may require ownership of the stored data to protect their interests and may provide information to government agencies when requested.  In light of this, when engaging services of cloud storage providers, the terms and conditions of any agreement should be carefully considered.  Further, a cloud storage provider would need to be capable of customising software for, by way of example, the legal industry, and adapting to its changes.  Local cloud storage providers may have the flexibility to provide this; however, they may not offer the same technology and financial security as overseas cloud providers.

Anyone who engages the services of a cloud storage provider must ensure that client confidentiality will not be compromised and all reasonable steps have been taken to ensure third parties or hackers cannot access client data.  Accordingly, clients should be informed that their personal information is held with a third party.

Methods to mitigate cloud storage risks

Even with all the necessary precautions in place, breaches may still occur. However, there are ways to mitigate the risks associated with cloud storage; examples include implementing the necessary agreements for acceptable service levels and remedies for non-compliance and conducting due diligence of service providers; creating strict restrictions and security on access to information; enforcing terms for the transfer of data; and knowing where the data will be stored and the privacy laws applicable.  Backup systems for damage control must be established and highly confidential information could be stored in a different manner to low risk information.

The decision to invest in cloud storage is a balancing act between the efficiencies of technology and the potential risks associated with privacy in the light of business strategy and priorities.