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May

1 May 2000

New Associate in Christchurch office
The partners of Caudwells are pleased to announce that Glenda Murphy has been made an Associate of the firm. Glenda joined Caudwells Christchurch office in 1995 and has experience in many aspects of commercial law specialising in commercial property and leasing transactions.

Feeling insecure? A brief overview of changes under the Personal Property Securities Act

There are changes ahead for those people involved in borrowing or lending money. A new system will impact upon financial transactions that grant or take a security over personal property (i.e. property other than land) with the Personal Property Securities Act 1999 (or the "PPSA"). The Act seeks to introduce consistency into this area of the law. Currently, different rules apply depending on the nature of the debtor, the property, or the security. The Act will apply to all 
secured transactions of personal property. At this stage, the legislation and start date have not been finalised. The general concepts are however worth becoming familiar with.

In particular new definitions or terms will become important. Legal distinctions have been made, for example between a "True Security Interest" and a "Deemed Security Interest". Secured property will be referred to as "collateral", the existence of a security interest is determined by its "Attachment" and/or "Perfection". Registration is by a "financing statement", with "verification 
statements" and "financing change statement" also becoming important. A significant change is that records of these securities will be entered, maintained, and retrieved electronically. The Register of 
Charges will be similar to and replace the Register of Motor Vehicle Securities. The system is intended to be on-line and up to date at all times. Searching and filing fees will be payable, but 
information will be more readily accessible from all parts of the country. Once registration occurs, it remains valid for its term, or for five years, whichever is the earlier and can be renewed for a further period.

Clearly the Act will have a significant impact on new security interests created after it comes into force. However, a transitional period will affect existing securities. Current indications are that all personal property securities, even if registered under existing registration law, will need to be registered under the PPSA. The transitional period will be six months, from when the Act comes 
into force and indications are that it will commence early next year. We shall keep you informed.

For further information:
Clare Malthus, Partner, Dunedin
Warwick Deuchrass, Partner, Dunedin
Roger Sandford, Partner, Christchurch
Peter Richardson, Partner, Christchurch


Debt collection!
There always have been, and there always will be, people who do not pay their debts. Some refuse to pay, others are unable to. Before any debt collection can be undertaken details of the debt should be ascertained. The commercial reality of collecting a small debt may mean Court 
action is not warranted. However, a creditor who does nothing gets nothing.

Having decided to pursue the debt there are several options open to you... Disputes Tribunals are operated throughout the country from District Court offices and can resolve disputes concerning sums up to $7,500 (or $12,000 by agreement between the parties).

With such a lot at stake, it is important the information on the application be clear, concise, and correct. Although legal representation is specifically prevented in Disputes Tribunal matters, it may be money well spent, to have Caudwells prepare the Disputes Tribunal application for you. The Disputes Tribunal is presided over by a referee who must determine the dispute "according to the substantial merits and justice of the case" and have regard to the law, but is not bound to give effect to strict legal rights, obligations, forms or technicalities. This introduces some uncertainty into the process. However, a Tribunal decision is enforceable as a judgment of the District Court.

The District Court may determine claims worth up to $200,000. If requesting payment from the debtor does not invoke payment, the next step is to issue District Court proceedings. Summary judgment proceedings can be issued where the debtor has no defence to the creditor's claim and if the debtor doesn't defend the proceedings, judgment will be entered and sealed, and enforcement 
proceedings commenced. Unless there is a contractual arrangement between the creditor and 
the debtor for payment of collection, or solicitor/client costs, only costs set out in the District Court scale (less than the actual costs of the proceedings) can be obtained.

The High Court has the sole jurisdiction to determine disputes where the amount claimed is in excess of $200,000 and the procedures are essentially the same as for the District Courts. However, the scale of costs awarded in the High Court is considerably higher.

And finally, there is a Statutory Demand and Application for Liquidation. Where the debtor is a company, and the debt exceeds $1,000 a Statutory Demand issued under Section 289 of the Companies Act 1993 can be issued and served on the company. The company has fifteen 
working days to settle the claim to the creditor's satisfaction. If it fails to do so the company is presumed to be unable to pay it's debts and the creditor can apply to the High Court for liquidation of the company.

Unfortunately, obtaining judgment against the debtor, will not guarantee payment. Enforcing the judgment opens various options to the creditor.

For further information:
Glenda Murphy, Associate, Christchurch
Lesley Brook, Associate, Dunedin
Ellen Langley, Legal Executive, Dunedin


Director's Personal Liability
One of the changes the Employment Relations Bill introduces is a provision for personal liability directors for:

  • Wages under an employment contract;
  • Wages under the Minimum Wage Act;
  • Holiday pay under a contract;
  • Annual leave, special leave and public holiday pay under the Holidays Act.

The liability arises when a body corporate fails to pay wages or holiday pay, most likely when a company goes into liquidation. Wages and holiday pay are already a priority ranked debt on liquidation, but if there are insufficient funds to fully pay wages, employees could sue directors personally to recover the shortfall. It could be used to pressure a company to pay. Anyone bringing a wages claim could join a director to the claim because the company has failed to pay. It is not necessary to wait until the company is insolvent or in liquidation.

Who could be liable?
The new provision applies also to officers or agents of a company. The directors of a company are defined, being listed for the companies register. A company secretary would be an officer. Agents 
could be anyone who represents the company and has authority to act on its behalf. That could include an outside agency such as a firm providing payroll services or managers who are not directors or officers of the company.

The person is liable only if they "directed, authorised, assented to, or acquiesced in the failure to pay". There is no express defence of reasonable and honest (but mistaken) belief that the failure to pay was lawful. The directors would normally be entitled to be reimbursed by the company, if they were properly acting in the course of their duties to the company, but that is small comfort if insolvency is the reason the company has not paid wages. The clause applies to directors, officers and agents of any body corporate. This includes companies, trusts, local authorities and incorporated societies.

What to do?
The risk of personal liability makes it all the more important for employers to comply with pay obligations. If an employee or a Labour Inspector makes a claim for wages, employers should reply giving reasons why the wages are not payable. A company's insurance cover should insure directors, including cover for personal liability under the Bill.

For further information:
Frazer Barton, Partner, Dunedin
Lesley Brook, Associate, Dunedin
Craig Hyde, Solicitor, Christchurch

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