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Legal matters: understanding your legal obligations in an increasingly regulated business environment.

There's probably never been more attention paid to concerns raised over many of the legal issues facing small and medium business enterprises; but while the Government is listening to SMEs, and Small Business Minister John Tamihere has promised changes in a number of areas, these won't happen overnight.



Businesses in New Zealand, be they small, medium or large, are confronted by more than 7000 Acts and regulations. That's a lot of red tape fluttering in the breeze.

Gillian Spry, associate at Hamilton law firm Norris Ward McKinnon, leads the firm's employment and compliance team. Michael Jones is an associate on the commercial business team. Both lawyers deal with the legal challenges confronting SMEs on a daily basis. And both point out that many of the issues which see SMEs seeking legal advice, are as much related to business management as they are to the law.

"The old way of doing everything yourself is not possible when the knowledge base required is so wide." says Spry. "But businesses need to see outside assistance as an investment rather than a straight cost."

So what do Spry and Jones regard as some of the major legal issues facing SMEs in 2004.

Obligations under the Companies Act

This places obligations on the directors of companies but Michael Jones says often directors of closely held companies--or those where directors are also shareholders--overlook the requirements of the Act. This can lead to trouble with Inland Revenue, funders, creditors and other parties with whom the business may contract. "At worst directors can be fined, or even jailed, for failing to observe the requirements of the Act," says Jones.

"For the most part obligations relate to keeping clear records regarding the company's operations and minuting decisions made by directors for transactions involving the company."

Personal Property Securities Act

This Act established the Personal Property Securities Registers (PPSR) which replaced the Motor Vehicle Securities Register and the Companies Office Charges Register and, says Jones, has taken prominence in trade over the past two years.

"Effectively a charge can be registered against any personal asset except land."

There are two main impacts on SMEs:

(a) Business people can encumber just about every asset they own to obtain funding including vehicles, plant and equipment. "While this has proven beneficial to small business owners, the main trading banks still do not see these types of assets as strong security."

(b) The standard terms of trade that suppliers of goods operate under should be updated to deal with the ability to register charges on the PPSR. "Basically, if a business has supplied goods to another on credit it has the ability (provided that its terms of trade allow for it) to protect itself with a charge on the PPSR. If the supplier does not have the ability or fails to do so, it may lose rights against other creditors of the debtor.

Intellectual property

A lot of businesses are established on the back of a novel idea or a product that's new to the market. Protecting the advantage of that idea or product is crucial says Jones.

"Intellectual property protection in the form of patents, copyright, trade marks and designs is something a lot of business owners overlook or assume is too expensive to deal with. This can often have disastrous results if competitors are freely able to copy or dilute the advantage of having sole rights to an idea.


"Obtaining protection of intellectual property is something that should be considered very early on by business owners."

Fair trading

Many people sell goods or services without considering their potential to 'come back and bite them' says Jones. "All business owners need to consider the requirements of the Consumer Guarantees Act and the Fair Trading Act which protect the consumer and other people in the trade."

Such things as disclaimers and exclusion clauses are important on the provision of advice and the sale of goods.

Jones says it's important to bear in mind that the two Acts cannot be contracted out of, so more than anything business owners should familiarise themselves with their obligations to avoid embarrassing confrontations or bad PR.

"No-one likes to have their name splashed on FairGo for failing to comply with the consumer protection rules."

Protection of personal assets against business failure

The area of family trusts, joint family homes and other asset protection avenues are extremely important for people to consider when entering business, because if the business fails this will often ruin the business owner.

"A well thought out asset protection plan can save the business owner's family home from being taken to pay the debts of the business. The Joint Family Homes Act provides limited but inexpensive protection to business owners while a family trust can, if established and managed correctly, provide total protection."

Compliance with employment related legislation

With regard to The Employment Relations Act, Health and Safety in Employment Act, Privacy Act, and Human Rights Act, Spry says "all business should go as far as possible to minimise their risks. The solution here is to have in place a proper compliance system that is integrated into the business."



She points out that the costs of non-compliance can be significant when things go wrong, leading to workplace disruption, litigation and fines.

"The solution is for business to be pro-active rather than re-active. Put protection processes in place before problems arise."

Spry cites the Business Based Compliance service developed by Morris Ward McKinnon to address all these issues as a safe and simple solution for SMEs; "It helps them become good employers and attract good employees."

Keeping up with legislation

Ignorance can lead to problems says Spry. "Changes have been frequent over the last three years. Employers have to keep up to date and have a good relationship with legal advisers who can keep them updated."

Proposed changes to the Employment Relations Act have been well publicised and employers have been lobbying against it, but says Spry, if this is not successful, employers face significant changes to the way they 'do business'.

The proposed changes include:

* Protection of employees in restructuring situations which significantly increase employee rights and add costs and complexity for employers selling or restructuring a business.

* Clarifying the duty of good faith and providing penalties for breaches.

* The promotion of collective bargaining and union membership.

* The right to receive equal pay. It will be essential for employers to have transparent systems which demonstrate why one person is paid more than another when they are doing the same work.

Such changes says Spry, also require a positive duty on the employer to ensure that employees are aware of their rights.

"This should be done primarily by the re-drafting of, or variation of, employment agreements and by employers talking to employees about the changes and ensuring they understand them."

A solution to those vexing legal issues facing SMEs could well be between the covers of Compliance and Your Business. This new publication, launched in February, is a collaboration between legal publishers Brookers Ltd, law firm Minter Ellison Rudd Watts and a team of business writers.


Minister of Small Business, John Tamihere, expects the issues raised during the Government's current series of Small Business Days (concluding May 13) to be very similar to those discussed during MP visits in the lead-up to this initiative.


The top four issues, in order of frequency, were the Holidays Act, taxation, employment relations and compliance costs.

"Obviously complying with the law is a fact of life for businesses and the feedback I get during the series will inform Government's policy and legislation regarding the small business sector," says Tamihere. "In particular regions, particular issues are likely to come more to the fore--for example, in Marlborough access to skilled labour and dealing with immigration laws in this area was an issue concerning many." But he says overall, legal issues concerning small business show a common pattern around the country. "Businesses simply want to spend as little time as possible dealing with legal issues and more time actually doing business."

Tamihere says the new Employment Agreement Builder (available at that provides businesses with a ready-made employment agreement to meet all legal requirements, is a good example of making legal issues easier for small businesses. For the Small Business Days schedule and program visit

Patricia Moore is an Auckland-based writer,
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Title Annotation:The Law
Author:Moore, Patricia
Publication:NZ Business
Geographic Code:8NEWZ
Date:Apr 1, 2004
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