December 2014 - McCaw Lewis

Introduction

After the Pike River Mine tragedy and the subsequent Independent Taskforce report, the Government embarked on reviewing the current Health and Safety in Employment Act 1992. As a result, the Health and Safety Reform Bill was introduced to Parliament on 10 March 2014 and passed its first reading a few days later. The Bill provides for many changes to the current Act with key changes including:

New duty holder definitions;
New obligations on all parties, with increased worker participation requirements; and
Increased enforcement and penalties.

New duty holder definitions

The Bill seeks to define the parties that will be affected by the new Act. The newly defined duty holders include:

A person conducting a Business or Undertaking (“PCBU”) who is a person or company conducting a business or undertaking whether working alone or with others. A PCBU may or may not conduct a business or undertaking for profit or gain;
Officers who may be directors of companies or equivalents, and partners of partnerships. Officers may also include any person occupying a position in a body corporate that is comparable to a director of a company and any person who is in a position of making decisions that will affect the whole or substantial part of the PCBU; and
A worker who is a person who carries out work for a PCBU which may include employees, contractors, subcontractors or their employees, apprentices, trainees, persons on work experience, volunteers, employees of labour hire companies.

New obligations on all parties

There is a shift from the current obligations of employers to take “all practicable steps” to the new standard of PCBUs, officers and workers taking “reasonably practicable” steps to ensure the safety of workers. While on the face of it, the obligations appear to be the same however the new obligation means that the PCBU must do what is (or was at a particular time) reasonably able to be done in relation to ensuring the health and safety of workers. This means that cost can no longer be relevant consideration, unless it is grossly disproportionate.

PCBU

It is the general duty for all PCBUs to ensure, so far as reasonably practicable the Health and Safety of:

Workers employed or engaged or caused to be employed or engaged by the PCBU, while in the business or undertaking; and
Workers whose activities in carrying out work are influenced or directed by the PCBU, while the workers are carrying out the work.

In addition to this, the PCBU must also take all reasonably practicable steps to ensure that the health and safety of others is not put at risk from work carried out as part of the conduct of the business or undertaking.

Officers

Under the Bill, Officers will also have duties to exercise due diligence to ensure that the PCBU complies with its duties. Among other matters, Officers are required to:

Acquire and keep up-to-date knowledge of work health and safety matters;
Gain an understanding of the nature of the operations of the PCBU and the associated hazards and risks;
Ensure that the PCBU has and uses appropriate resources and processes to eliminate or minimise risks;
Ensure that the PCBU has appropriate processes for receiving and considering information regarding incidents, hazards and risks;
Ensure that the PCBU has and implements processes to comply with the duty the Act will imply; and
Verify the provisions and use of the resources and processes by the PCBU.

Workers

There is a shift to putting more onus and obligations on workers (formerly employees) in relation to taking care of their own health and safety. Under the Bill, workers must:

Take reasonable care of their own health and safety;
Take reasonable care of their own acts or omissions so that they do not adversely affect others; and
Comply with any reasonable instruction that is given by the PCBU to allow the PCBU to comply with the Act.

Worker participation

The Bill puts further focus on worker engagement as it is believed that effective worker participation can reduce accidents and as a result improve safety.

Increased enforcement and penalties

Under the Bill, there will be number of enforcement mechanisms that are available to the Health and Safety Representatives within a PCBU. The Health and Safety Representatives would be able to issue notices if they believe a person is in breach or is likely to breach the provisions of the Act or regulation. If a party is issued with one of these notices, the party can apply to WorkSafe for an internal review into the actions and for recommendations on how to improve.

A party can be convicted for breaches relating to the Health and Safety namely for the following:

Reckless conduct exposing an individual to risk of death or serious injury with a maximum conviction of $3million fine or imprisonment term not exceeding 5 years;
Failing to comply with a health and safety duty that exposes an individual to risk of death or serious injury or illnesswith a maximum conviction of $1.5million fine; and
Failing to comply with a health and safety duty with a maximum fine of $500,000.

What this means for you

Overall the Health and Safety Reform Bill seeks to improve the workplace health and safety culture within New Zealand. While the concept of protecting employees and workers is not new, the obligations have increased and so have the penalties. The good news is that by ensuring your business has the correct processes and procedures in place to effectively manage and mitigate any health and safety concerns, you are able to protect yourself against maximum exposure. Similarly, if you are a worker, you are able to personally reduce your exposure by ensuring you follow correct procedures and by bringing any health and safety concerns to the attention of your PCBU.

If you would like further information please contact Renika Siciliano on 07 958 7429.

Business risk in New Zealand

With New Zealand economic conditions improving, business confidence on the rise, and general business “picking up” some perceive understanding the risks associated with New Zealand businesses is less important than it once was. Although there may be some truth that the level of business risk may be lower now than two years ago, the idea that prospective business purchasers can be less prudent when investigating prospective businesses is only creating a false paradigm. When looking to purchase a business the importance of identifying the risks associated with that business and managing those risks is pivotal.

How to identify the risk

Due diligence is a term used to describe the investigation process undertaken by a purchaser or their representative before a business is purchased. The objective of carrying out this process is to extract privileged information and knowledge from the vendor about the business. The information gathered from a due diligence investigation can expose inaccuracies in the information provided by the vendor, as well as details of any current or impeding weaknesses of the business that may inevitably cause substantial risk and loss to the purchaser if the sale goes ahead.

The quality of the due diligence investigation will determine the quality and outcome of the information that is discovered. Therefore, it is important to engage appropriate professionals and experts to conduct the investigation to ensure all avenues are covered, minimising any unexpected surprises following settlement.

Key points to investigate

Although different industries and business structures will have different key areas that will need to be investigated, it is essential that the basic components of a business are investigated irrespective of the size or type of the business. This includes looking into the arrangements with the employees, the value and quantity of stock/work in progress, the extent of the business’s liabilities and the nature of the existing contracts.

When purchasing shares in a business, investigating the employee matters is less important as the employees are part of the business so generally remain with the business. Conversely, when purchasing the assets of a business, the purchaser has the option to take over all or some of the employees on the existing employment terms or new employment terms can be negotiated. Either way, conducting due diligence will allow a purchaser to determine whether there is any accrued annual leave or other paid leave owed to the employees. Often the purchaser will negotiate with the vendor for any leave owed to the employees to be paid out prior to the new purchaser taking over the employees’ contracts.

Being aware of the type of stock required to run the business, how often it turns over, and whether the business turnover reflects industry standards, are all questions that will be answered when analysing the stock and work in progress of a business. It is important that a purchaser feels comfortable with the stock they are purchasing and the value they are paying for that stock. The extent and nature of the due diligence investigation into the stock/work in progress will depend on the industry the business operates in. For example, a large furniture manufacturer will have more stock and work in progress to be assessed and valued than a small interior design business.

It is crucial to appreciate the importance of investigating every area of the business as minor inaccuracies such as a small accounting error when valuing each unit of stock can lead to a significant expense on settlement day.

Investigating the vendor’s liabilities is only required when purchasing shares in a business, as the liabilities remain with the business and therefore become the responsibility of the purchaser. Conversely, when purchasing the assets of a business the liabilities of the business remain with the vendor. Investigating the liabilities of a business can be an arduous task as the relevant information is usually not as accessible as the vendor can be less willing to provide information about what the business owes as opposed to providing a list of its suppliers. Despite this difficulty, it is worth purchasers investing in professionals or appropriate experts such as engaging an accountant to review and analyse the financial reports to gain a clear picture of all the business’s liabilities. A thorough due diligence investigation will minimise the risk of any unknown debt being uncovered well after settlement has taken place.

All third party contracts should be thoroughly reviewed prior to finalising an agreement to purchase a business. This is so the purchaser is clear about the nature of the relationships, the quality of the goods or services provided, and whether the third parties intend on continuing with the existing arrangement after the business is handed over. This part of the due diligence process can play a pivotal role in the success of the business after hand over. For example if a key supplier terminates their contract with the business soon after settlement, there could be serious financial implications if the business is unable to find a new supplier that can supply a similarly priced and quality product. In the event this occurred, the business may have no option but to go to a more expensive supplier or alternatively a supplier with an inferior product.

What to consider before going unconditional

It is not uncommon once due diligence has been completed, for the purchaser to negotiate some amendments to the sale and purchase agreement. For example:

A reduced purchase price;
Renegotiating the values of the tangible assets and intangible assets (e.g. goodwill value to increase and tangible assets value to decrease with the overall purchase price to remain the same); or
Adding further vendor warranties (e.g. a turn-over warranty).

During the due diligence period, if any serious issues are uncovered, it may be appropriate for a purchaser to cancel the contract before it goes unconditional, opposed to negotiating more favourable terms to mitigate the risks. It is important, the purchaser is comfortable with all aspects of a business and understands all of the risks involved before purchasing. Often a purchaser’s judgement can be clouded in the event a vendor responds to any issues raised by heavily reducing the purchase price. In this situation the purchaser can overlook the strong possibility that the purchase price was significantly overpriced to begin with instead focusing solely on the “savings”.

A purchaser should invest significant resources into the due diligence process before buying a business. This will minimise the possibility of anything unexpected occurring/coming to light after the business is handed over. A quality due diligence investigation carried out by the appropriate experts/professionals will assist with purchasing a viable and successful business.

If you would like further information please contact Laura Monahan on 07 958 7479.

Month: December 2014

Health and safety reforms: What you should know