This article appeared in the Otago Daily Times, August 2016.
The Companies Act (Act) was recently amended last year with the aim of making the company incorporation and maintenance process more robust. Now every company must have at least one director living in New Zealand. The Act itself does not specify a threshold by which a director will be deemed to be living in New Zealand. This creates some uncertainty for those directors who maintain global business connections and spend significant periods overseas. Until now, it has been left up to the Registrar of Companies to create and apply a suitable test, with little guidance from the Act. Now we have the benefit of a decision of the High Court.
This decision concerned John Carr, a director whom the Registrar of Companies deemed to not be living in New Zealand. As a result the several companies of which Mr Carr was the sole director were noncompliant with the Act.
The Registrar had imposed a threshold which required directors to be in New Zealand for 183 days, a standard borrowed from income tax legislation. In 2015 Mr Carr was resident in New Zealand for only 69 days, well below the Registrar’s threshold. Mr Carr appealed this decision on the grounds that while his physical presence would not ordinarily indicate that he was living in New Zealand there were other factors that should be taken into account when determining the residency of a director.
The High Court agreed with Mr Carr and applied a multifaceted approach to the issue. The Court considered that the purpose of the legislative change was not to ensure there was a director physically present in New Zealand for a certain number of days each year but was instead focussed on a director’s capacity to enforce obligations and a residency requirement was a convenient vehicle with which to achieve this.
While the Court took into account the number of days Mr Carr was physically present in New Zealand, it also considered other matters to be just as relevant. The Court was careful not to prescribe a definitive criteria, but determined that a director’s “connection to New Zealand, the ties they have to New Zealand and the manner of their living when here” should all be taken into account when determining whether a director lives in New Zealand for the purpose of the Act.
When applied specifically to Mr Carr’s case, the Court found that Mr Carr “enjoys or possesses many of the trappings of a New Zealand resident,” noting his personal circumstances tying him to New Zealand. Mr Carr was a New Zealander who owned two homes in New Zealand and his partner lived in one of them for most of the year. He held a New Zealand driver’s licence, had New Zealand bank accounts, was a member of New Zealand organisations and his primary doctor was a New Zealand GP. Mr Carr had strong ties to New Zealand with his employment of a significant number of staff across his business interests.
It is clear from this decision that a strict test of residence based on physical presence in New Zealand will not always be suitable for determining whether a director satisfies the “living in New Zealand” requirement of the Act. This is an approach that should be welcomed for its flexibility and application to a modern and interconnected world where directors are likely to have overseas commitments and interests requiring their attention.
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