Carr

[2016] NZHC 1536

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2015-404-2666 [2016] NZHC 1536

UNDER:	the Companies Act 1993 (the Act)
INTHEMATTER:	of an appeal pursuant to section 370 of the Act against the decision of the Registrar of Companies
RE:	JOHN MALCOLM CARR Appellant

Hearing:	7 June 2016
Counsel:	G Clarke for Appellant S McKechnie for Registrar of Companies
Judgment:	7 July 2016

JUDGMENT OF SIMON FRANCE J

Introduction

[1]      In 2015 the essential requirements for a company were amended to add a residence requirement, namely that the company must have:1

(d)      1 or more directors, of whom at least 1 must –

(i)       live in New Zealand; or

(ii)      live  in  an  enforcement  country  and  be  a  director  of  a company that is registered (except as the equivalent of an overseas company) in that enforcement country.

The change was one of a suite of amendments focussing on increased governance of

New Zealand registered companies.

1      Companies Amendment Act 2014 inserting which is now s 10(d) of the Companies Act 1993.

[2]      Mr Carr is the sole director of a number of such companies.  The Registrar of Companies has ruled that he does not live in New Zealand, and so any companies of which he is the sole director are non-compliant.  Mr Carr appeals.2

The purpose of the amendment

[3]      Prior to the amendment there was no requirement that a director or any officer of the company live in New Zealand.  The purpose behind the change is set out in the Explanatory Note to the Bill, and then the Report to the Commerce Committee which considered the Bill.   As will become clear, originally the draft legislation contained an option whereby instead of a resident director, a resident agent could be appointed.

[4]      First, the Explanatory Note:

Residents agents

The resident agent changes seek to ensure that for each company and limited partnership, there is at least 1 person who lives in New Zealand who is legally responsible for the entity’s administrative affairs.  That person is not a de facto manager.  However, he or she will have responsibility (along with the other relevant people) if the entity fails to comply with its reporting and record-keeping obligations.

and then the Select Committee Report:

The purpose of requiring a director who lives in New Zealand is to ensure that there is an identifiable individual with a substantive connection with the company who can be questioned about the activities of the company, and who  can in certain circumstances  be  held to account.   The requirement would  provide  a  broad,  practical,  non-technical test for  the  Registrar to apply.  A person would not be required to be a New Zealand citizen or to hold  an  appropriate  visa  before  they  could  be  a  director  who  lives  in New Zealand,  although  the  person’s  residence  status  would  probably  be relevant to the Registrar’s consideration in appropriate cases.

The option of appointing an agent who lives in New Zealand was intended to provide  an  alternative  with  lower  compliance  costs  for  overseas-based New Zealand  companies,  but  we  consider  that such  agents  would  be  of limited help to enforcement agencies and in many cases would not be accountable for the actions of the company.  We therefore consider that the requirement for an agent living in New Zealand would provide only limited deterrence from the misuse of companies and limited partnerships.

2      Pursuant to s 370 of the Companies Act 1993.

We have considered the costs of this requirement and believe that most companies and limited partnerships already comply.  At most we understand that 4,200 companies would need to adjust their circumstances to comply, and these companies could choose from several options to meet the requirement, including that of a director living in an enforcement country with a reciprocal arrangement for the enforcement of low-level criminal fines with New Zealand.

[5]      Against that background the issue arises of whether Mr Carr, who habitually spends about one-third of a year in New Zealand (and who does not come within the alternative provided by s 10(d)(ii)), can be said to be living in New Zealand for the purposes of this provision.

The Registrar’s approach

[6]      The Registrar has filed a Report pursuant to r 20.15 of the High Court Rules. By way of background the Court is advised that as at 31 January 2016 there were

569,080  companies  registered  in  New Zealand.    Obviously  many  have  multiple directors.  At the time of the amendment it was estimated there were approximately

5,800 companies that did not comply with the new requirement.

[7]      Drawing on the taxation legislation, the Registrar has identified a threshold of

183 days a year.  If a director spends at least that amount of time in New Zealand, it will be accepted he or she is living in New Zealand for the purposes of s 10(d). Failing that, opportunity is given for a director to establish by other factors that he or she lives in New Zealand.   Seemingly no guidelines are yet in place for assessing such applications (of which there are presently 10 undetermined).   The Registrar cites as a possible example an occasion where the particular year is aberrant and involves greater absence than normal.

Mr Carr’s situation

[8]      Mr Carr has extensive business interests in both New Zealand and elsewhere. He provided this detail of where he has physically been in the recent years:

2015	2014	2013	2012	2011	2010	2009
New Zealand	69	108	136	142	126	116	118
United   States of America	203	175	146	150	159	194	195
Australia	42	67	37	53	44	48	22
Other Countries (including days of flying)	51	15	46	21	36	7	30

[9]      Mr Carr is a New Zealander who owns two residences in New Zealand.  His partner lives most of the year in one of them (rather than travel extensively with him).  He has several New Zealand companies which employ staff and which require his supervision.   He owns several parcels of land in New Zealand.   He otherwise enjoys or possesses many of the trappings of a New Zealand resident – driver’s licence, firearms licence, Tax Agent status, New Zealand voter, New Zealand bank accounts and credit cards, membership of organisations, and long-term telephone numbers.  His primary care physician is a New Zealand general practitioner.

[10]     The essential thrust of his submission is that the Registrar’s focus on the number of days when he is physically present in New Zealand is not required by the Act, and is too narrow.  When one factors in all the other matters to which I have just referred, it is apparent that he lives in New Zealand in the ordinary meaning of the word.

Analysis

[11]     The use of “lives” in s 10 rather than the more common “resides” is not of

significance.   The equivalent overseas statutes use the more common expression,3

and it is difficult to discern any meaningful difference between the two words.

3 In Australia the expression is “ordinarily resident” (s 201A of the Corporations Act 2001) and in

Canada “resident Canadians” (s 105(3) of the Business Corporations Act 1985).

[12]     The concept of ‘resides’ has been defined as:4

Unless, therefore, it can be shown that the statutory framework or the legal context in which the words are used requires a different meaning, I unhesitatingly subscribe to the view that ‘ordinary resident’ refers to a man’s abode in a particular place or country which he has adopted voluntarily and for settled purposes as part of the regular order of his life for the time being, whether of short or long duration.

[13]     This is plainly a useful starting point but it is  equally apparent that  the

statutory context will affect the Court’s approach.

[14]     In Greenfield v Chief Executive of the Ministry of Social Development the Supreme  Court  considered  the  expression  “ordinarily  resident”  in  s 8(a)  of  the New Zealand  Superannuation  and  Retirement  Income  Act  2001.5    The  Court observed the meaning will turn on the particular statutory context within which it is used.6   There, for example, the statutory context made it plain that a person could not for the purposes of that legislation be resident in more than one country.  This meant that the Mrs Greenfield’s intention to return to her native New Zealand at some point to live (having been overseas for many years on missionary work) could be given less weight than it might in other contexts.   Ultimately the task of the Court is to ascertain what degree of connection is intended by the use of a residence criterion in order to meet the purposes of the Act.7

[15]     Here, the statutory purpose can be discerned by reference to the section itself and the legislative history.  Whilst physical presence in New Zealand is obviously relevant, it is plain that the capacity to enforce obligations was the paramount driver of this legislative change.  For this reason I consider greater weight should be placed on the ties Mr Carr has to New Zealand and the regularity with which he spends

significant periods of time here.

4      Shah v Barnet London Borough Council [1983] 1 All ER 226 at 235.

5      Greenfield v Chief Executive of the Ministry of Social Development [2015] NZSC 139, [2016] 1

NZLR 261.

6 At [32].

7      At [32], n 35, citing the Court of Appeal in the decision appealed, Chief Executive of the Ministry of Social Development v Greenfield [2014] NZCA 611, [2015] 3 NZLR 177 at [30]. For this reason I consider it unhelpful to review authorities under the many legislative provisions that make residence either a requirement or a relevant fact. Examples include benefit legislation, income tax and accident compensation legislation, and the High Court Rules (r 5.45 security for costs).

[16]     In terms of the statutory purpose, it can first be noted that s 10(d)(ii) provides an alternative to a director actually living in New Zealand.  A director may instead live in an enforcement country and be a director of a company registered there. Under this option there is no requirement to spend any time at all in New Zealand. In  its report  cited  earlier the select  Committee described  the key feature of an enforcement   country  as   being   one   with   “a   reciprocal   arrangement   for   the enforcement  of  low-level  criminal  fines”.    Second,  the  reason  the  alternative proposal of allowing a resident agent to be appointed was abandoned was because it would not provide a satisfactory enforcement option.   It can be seen from these matters that physical presence is not the key aim – it is one means to an end.

[17]     In his appeal Mr Carr took issue with the Registrar’s adoption of 183 days as an initial threshold.   However, it must be appreciated that it is only a sifting mechanism that provides a criterion through which directors can automatically meet the statutory test.  It definitively includes, but does not automatically exclude.  It is open to directors to meet the test by other means.  Seen in this light, the threshold is unobjectionable.   Indeed, given the number of directors there are in New Zealand, some definite, easy to apply criterion is to be expected.   A more individualised assessment of all directors is unrealistic and unnecessary.

[18]     It is to be remembered, however, that the 183 days is just a figure with no intrinsic merit.  Necessarily it draws an arbitrary line, a fact which can be illustrated by the director who spends exactly six months here and so fails by a day.   That deficit necessitates an inquiry into the director’s circumstances, but it is an inquiry which  would  have  regard  to  the  fact  that  the  person  is  only  one  day  short  of automatic acceptance.

[19]     Without laying down any definitive criteria, matters that will be relevant, given the emphasis on enforcement, are the amount of time the person does spend here, their connection to New Zealand, the ties they have to New Zealand and the manner of their living when here.  In my view Mr Carr presents an example of the type of arrangement that can satisfy the test without living here for 183 days.  No one factor is critical or determinative but together I consider they mean Mr Carr can properly be said to live in New Zealand.

[20]     Objectively he spends about a third of the year here.   That is a significant period.  Personally he has strong ties to New Zealand – his partner resides here most of the year, he has a home here in which he lives, he is a member of various clubs and organisations and his primary physician is his New Zealand GP.

[21]     Professionally he also has strong ties.  He has businesses here which employ a significant number of staff.  At various times they require his personal oversight. He owns land here, has New Zealand bank accounts and generally presents as any New Zealand business person would.

[22]     Once it is recognised that physical presence is not the key requirement (as it could not be if the default period of 183 days presence is enough), then there is little difficulty in saying Mr Carr lives in New Zealand for the purposes of the statute.  He may also live elsewhere, but he also continues to live in New Zealand. There is nothing about his situation that suggests it should fall outside the intended scope – he is able to be questioned about the companies and enforcement is possible.

Conclusion

[23]     The appeal is allowed.  I determine that Mr Carr has wrongly been held not to live in New Zealand for the purposes of s 10(d) of the Act.  The parties agreed prior

to the hearing that costs would lie where they fall.

Simon France J