SBR NZ Case Study: Helping Foreign Companies Recover Debts

New Zealand is the perfect middle-earth, the idyllic fictional setting inhabited by human beings in J.R.R. Tolkien’s Lord of the Rings. The World Bank seems to agree with the scouting director of the movie Lord of the Rings when it ranked New Zealand as the easiest country in the world to do business with. New Zealand is idyllic, not just because of its diverse scenery, but also because of its business environment.

Slater Byrne Helps Foreign Companies Recover Debts In New Zealand

Because of its small size, New Zealand relies much on imports, like petroleum, plastics, and vehicles. In fact, the country’s imports make up 60% of its economy. New Zealand is party to bilateral free trade agreements with the United States and most of its neighbours in the Asia-Pacific region, facilitating a more open trading of goods and services. New Zealand, like Australia, is also a signatory to international agreements on commercial arbitration, electronic commerce, and cross-border insolvency proceedings model law.

When it comes to debt collection, credit insurance company Euler Hermes gave New Zealand a “Notable” Debt Collection Complexity score, which means debt collection in the country is one of the least complicated in the world. When doing international business and recovering unpaid debts in New Zealand, there are still challenges worth taking note of.

Business Context

Reports prepared by credible institutions like the World Bank and Euler Hermes only serve as guides to learn about the countries where you intend to conduct business with. There may be business quirks that could not captured in the data presented in those reports that it is always good to conduct your own individual due diligence. One example of this, as pointed out by Euler Hermes, is that late payments in New Zealand are not regulated so that interest and collection costs would essentially depend on the court.

One good thing to do before doing business in New Zealand is to investigate your prospect partner’s credit situation and financial health. New Zealand has a companies register, which requires each company to have a New Zealand Business Number (NZBN), a globally unique identifier available to every Kiwi business. The NZBN makes it easier for international clients to connect and transact with Kiwi companies. The NZBN allows clients to quickly find information they need about the business.

Debt Collection Regulations

While New Zealand is a signatory to numerous international commercial conventions, these conventions do not include debt collection protocols. There is no international debt collection standard. Debt collection regulations vary from country to country. The Consumer Guarantees Act and the Fair Trading Act govern debt collection in New Zealand. There are two processes by which lenders can get their money back in New Zealand: repossession and debt collection.

In New Zealand, debt collectors use phone, letters, and emails to communicate with debtors. Face-to-face contact is used only when it is absolutely necessary. The difference in time zones can be a nightmare and can drag the debt collection process further. Moreover, language and local culture can be a barrier to an effective debt collection process.

Court Proceedings

New Zealand has no formal written constitution. New Zealand, like Great Britain, follows a common law legal structure, which means no one law govern commerce and trade. New Zealand has four levels of general courts. Most civil matters, including commercial disputes, are heard before a district court in the country. Courts are fairly efficient in delivering timely decisions, however, favouring amicable and pre-legal methods is always advisable. In fact, the sooner the better as, if the debtor becomes insolvent, the chances of recovering the debt will reduce in time.

If ownership protection clauses play a significant role in obtaining payment (or in repossessing goods), New Zealand requires that registration of properties securing payment is necessary. whilst, unless the debtor agrees to avoid proceedings, having the clauses enforced by courts remains a prerequisite.

Insolvency Proceedings

New Zealand ranked 29th in Euler Hermes’ countries with ease in resolving insolvency. Section 4 of the country’s Companies Act of 1993 includes a solvency test. A company is deemed solvent if:

  1. the company can pay its debts as they become due in the normal course of business, and
  2. the value of the company’s liabilities, including contingent liabilities, is less than its assets.

A 2019 court ruling in David Browne Contractors Ltd v Petterson clarified the New Zealand solvency test to mean a “practical business perspective” test, holding that the assessment should include future and contingent debts. Certain situations also require that directors sign a solvency certificate. In cases of liquidation of a company, directors can be personally liable if they failed to fulfil their obligations under the Companies Act.

How Can Slater Byrne Help in International Debt Collection?

Knowing your trading partners’ NZBN is crucial in a successful debt collection transaction in New Zealand. Slater Byrne professionals are experts in the debt collection industry in New Zealand. We have represented clients from around the world, such as the U.S., the U.K., Ukraine, Russia, China, Singapore, Hong Kong and The Netherlands.

We have a local office in Auckland and we find custom solutions that abide with domestic laws and regulations. We also offer free consultations to companies around the world via phone call or WhatsApp. We represent international clients, wherever you are in the world, as long as the debtor is in New Zealand.