Financial Assistance Legislation

"Financial assistance" includes the situation where the Co-op allows someone to pay off a share over time.

The Companies Act 1993 specifies that unless all shareholders unanimously agree otherwise in writing, a company must notify all shareholders of the details of any financial assistance offered for the purpose of purchasing shares, and, if the total amount of money owing on shares being paid off over time exceeds 5% of shareholder funds, get the consent of all shareholders.

The notification sent to shareholders includes the name of the person receiving assistance, and we do not believe that this is appropriate in the context of the Co-op. For this reason, when applying for a Co-op share, you must agree that the Co-op can give financial assistance without following these rules.

As required by Section 107 of the Act, the Co-op will still be required to notify you every time financial assistance is given, but this notification will not include the name of the person receiving assistance.

The relevant sections of the legislation are included below. You can also view them on the New Zealand Legislation website: http://www.legislation.govt.nz/act/public/1993/0105/latest/whole.html#dlm319570

Companies Act 1993

76 Financial assistance

(1) A company may give financial assistance to a person for the purpose of, or in connection with, the purchase of a share issued or to be issued by the company, whether directly or indirectly, only if the financial assistance is given in accordance with subsection (2); and—
(a) all shareholders have consented in writing to the giving of the assistance; or
(b) the procedure set out in section 78 is followed; or
(c) the financial assistance is given in accordance with section 80.

(2) A company may give financial assistance under subsection (1) if the board has previously resolved that—
(a) the company should provide the assistance; and
(b) giving the assistance is in the best interests of the company; and
(c) the terms and conditions under which the assistance is given are fair and reasonable to the company.

(3) The resolution must set out in full the grounds for the directors' conclusions.

(4) The directors who vote in favour of a resolution under subsection (2) must sign a certificate as to the matters set out in that subsection and may combine that certificate with the certificate required under section 77 and any certificate required under section 78.

(5) A company must not give financial assistance under subsection (1) if, after the passing of a resolution under subsection (2) and before the assistance is given, the board ceases to be satisfied that—
(a) the giving of the assistance is in the best interests of the company; or
(b) the terms and conditions under which the assistance is proposed are fair and reasonable to the company.

(6) For the purposes of this section, financial assistance includes a loan, a guarantee, and the provision of a security.

(7) Every director who fails to comply with subsection (4) commits an offence and is liable on conviction to the penalty set out in section 373(1).

77 Company must satisfy solvency test

(1) A company must not give any financial assistance under section 76 unless the board of the company is satisfied on reasonable grounds that the company will, immediately after the giving of the financial assistance, satisfy the solvency test.

(2) The directors who vote in favour of the giving of the financial assistance must sign a certificate stating that, in their opinion, the company will, immediately after the financial assistance is given, satisfy the solvency test and the grounds for that opinion.

(3) If, after a resolution is passed under subsection (1) and before the financial assistance is given, the board ceases to be satisfied on reasonable grounds that the company will, immediately after the financial assistance is given, satisfy the solvency test, any financial assistance given by the company is deemed not to have been authorised.

(4) Every director of a company who fails to comply with subsection (2) commits an offence and is liable to the penalty set out in section 373(1).

(5) The provisions of section 56 apply in relation to the giving of financial assistance by a company with such modifications as may be necessary.

(6) In applying the solvency test for the purposes of this section,—
assets excludes amounts of financial assistance given by the company at any time under section 76 or section 107(1)(e) in the form of loans; and
liabilities includes the face value of all outstanding liabilities, whether contingent or otherwise, incurred by the company at any time in connection with the giving of financial assistance under section 76 or 107(1)(e).

(7) Nothing in subsection (6) limits or affects the application of section 4(4).

78 Special financial assistance

(1) Financial assistance may be given under section 76(1)(b) only if the board has previously resolved—
(a) that giving the assistance in question is of benefit to those shareholders not receiving the assistance; and
(b) that the terms and conditions under which the assistance is given are fair and reasonable to those shareholders not receiving the assistance.

(2) The resolution must set out in full the reasons for the directors' conclusions.

(3) The directors who vote in favour of a resolution required by subsection (1) must sign a certificate as to the matters set out in that subsection.

(4) A company must not give financial assistance under section 76(1)(b) if, after the passing of a resolution under subsection (1) and before the financial assistance is given, the board ceases to be satisfied that—
(a) the giving of the financial assistance is of benefit to those shareholders not receiving the assistance; or
(b) the terms and conditions under which the assistance is given are fair and reasonable to those shareholders not receiving it.

(5) Before the financial assistance is given under section 76(1)(b), the company must send to each shareholder a disclosure document that complies with section 79.

(6) The assistance may be given not less than 10 working days and not more than 12 months after the disclosure document has been sent to each shareholder.

(7) A shareholder or the company may apply to the court for an order restraining the proposed assistance being given on the ground that—
(a) it is not in the best interests of the company and of benefit to those shareholders not receiving the assistance; or
(b) the terms and conditions under which the assistance is to be given are not fair and reasonable to the company and to those shareholders not receiving the assistance.

(8) Every director who fails to comply with subsection (3) commits an offence and is liable on conviction to the penalty set out in section 373(1).

(9) If a company fails to comply with subsection (5),—
(a) the company commits an offence and is liable on conviction to the penalty set out in section 373(1); and
(b) every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(1).

79 Disclosure document

For the purposes of section 78, a disclosure document is a document that sets out—
(a) the nature and terms of the financial assistance to be given, and to whom it will be given; and
(b) if the financial assistance is to be given to a nominee for another person, the name of that other person; and
(c) the text of the resolution required by section 78(1), together with such further information and explanation as may be necessary to enable a reasonable shareholder to understand the nature and implications for the company and its shareholders of the proposed transaction.

80 Financial assistance not exceeding 5% of shareholders' funds

(1) Financial assistance may be given under section 76(1)(c), only if—
(a) the amount of the financial assistance, together with any other financial assistance given by the company pursuant to this paragraph, repayment of which remains outstanding, would not exceed 5% of the aggregate of amounts received by the company in respect of the issue of shares and reserves as disclosed in the most recent financial statements of the company that comply with section 10 of the Financial Reporting Act 1993, and the company receives fair value in connection with the assistance; and
(b) within 10 working days of providing the financial assistance, the company sends to each shareholder a notice containing the following particulars:
(i) the class and number of shares in respect of which the financial assistance has been provided:
(ii) the consideration paid or payable for the shares in respect of which the financial assistance has been provided:
(iii) the identity of the person receiving the financial assistance and, if that person is not the beneficial owner of the shares in respect of which the financial assistance has been provided, the identity of that beneficial owner:
(iv) the nature and, if quantifiable, the amount of the financial assistance.

(2) If a company fails to comply with subsection (1)(b),—
(a) the company commits an offence and is liable on conviction to the penalty set out in section 373(1); and
(b) every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(1).

107 Unanimous assent to certain types of action

(1) Notwithstanding section 52 but subject to section 108 ("Company to satisfy Solvency Test"), if all entitled persons have agreed or concur,—
(...)
(e) financial assistance may be given for the purpose of, or in connection with, the purchase of shares otherwise than in accordance with sections 76 to 80:
(...)
(4) For the purposes of this section, no agreement or concurrence of the entitled persons is valid or enforceable unless the agreement or concurrence is in writing.
(5) An agreement or concurrence may be—
(...)
(b) an agreement to, or concurrence in, the exercise of the power generally or from time to time.
(6) An entitled person may at any time, by notice in writing to the company, withdraw from any agreement or concurrence referred to in subsection (5)(b) and any such notice shall have effect accordingly.
(7) Where a power is exercised pursuant to an agreement or concurrence referred to in subsection (5)(b), the board of the company must, within 10 working days of the exercise of the power, send to every entitled person a notice in writing containing details of the exercise of the power.
(8) If the board of a company fails to comply with subsection (7), every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(1).