Resident director requirements – Registrar’s blackline approach overturned

The advent of the resident director requirement, which came into effect on 1 May 2015, has meant that it is an essential requirement for New Zealand companies that they have at least one director who:

• lives in New Zealand; or
• lives in Australia and is the director of an Australian-registered company.

The term “live in New Zealand”’ is not defined in the Companies Act. As a result, the Registrar of Companies has decided to interpret this on the basis that a director lives in New Zealand if he or she is personally present in New Zealand for more than 183 days in total in a 12-month period. The Registrar did not conjure this interpretation up out of thin air – it is in line with income tax residency requirements.

In a test case, the Registrar determined that, in the case of a Mr Carr who did not meet the 183-day threshold, the string of companies of which he was sole director were non-compliant and could have been liable to removal from the register.

On appeal from the Registrar’s determination , the High Court held that Mr Carr has wrongly been held not to “live in New Zealand” for the purposes of the Companies Act – and allowed the appeal. The judge found that:

“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.”

A few facts

Mr Carr has extensive business interests in New Zealand and elsewhere and the details he provided of the days when he had been physically present in New Zealand indicated that had spent less than 183 days in the country over a 7-year period (just 69 days in 2015).

However, Mr Carr had New Zealander residency, who owns two residences here. 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 also owns several parcels of land here and otherwise enjoys or possesses many of the trappings of a New Zealand resident – driver’s licence, firearms licence, Tax Agent status, on the voting roll, New Zealand bank accounts and credit cards, membership of organisations, and long-term telephone term telephone
term telephone numbers. He even has a New Zealand GP as his primary care physician.

Consequently, he submitted that the Registrar’s focus on the number of days when he is physically present in New Zealand is not required by the Companies Act, and is too narrow.

Decision

The Court found, that by contrast to the meaning of the term “ordinarily resident” for income tax purposes, the paramount driver for the resident director requirement was the capacity to enforce obligations (against directors). For this reason, the judge considered greater weight should be placed on the ties Mr Carr has to New Zealand and the regularity with which he spends
spends significant periods of time here.

The judge was helped in this conclusion by the fact that living in New Zealand is one alternative. That requirement may also be satisfied by a company having an Australian resident director who is also a director of an Australian-registered company.

It was also noted that the Registrar’s adoption of 183 days was an initial threshold – providing a criterion through which directors can automatically meet the statutory test (i.e. it definitively includes, but does not automatically exclude). As a result, he found that it is open to directors to meet the test by other means. (And the judge indicated that this arbitrary black line would lead to inquiry as to the director’s circumstances when, for example, they fell one day short of automatic acceptance).

Therefore, without laying down any definitive set of criteria, the judge found that matters that will be relevant, given the emphasis on enforcement, are:

• the amount of time the person spends here;
• their connection to New Zealand;
• the ties they have to New Zealand; and
• the manner of their living when here.

In finding that Mr Carr presents an example of the type of arrangement that can satisfy the test without living here for 183 days – the judge noted that no one factor is critical or determinative but together he considered they mean Mr Carr can properly be said to live in New Zealand.

Concluding comments

This decision will come as some relief in underlining the point that long periods of absence will not necessarily be fatal where, as in this test case, there are other factors connecting the director to New Zealand, noting the enforcement object of the resident director requirements.

In some regards, this might be seen to be an unusual test case given the accumulation of other factors relevant to Mr Carr’s connection to New Zealand. It appears that the Registrar has a number of other cases under examination and it may take further decisions affecting persons who do not meet the 183-day threshold test before we have a clearer set of criteria.

Further information

If you would like more information about any of the matters discussed in this note, please contact me.