Company Loan Agreement (New Zealand)

A New Zealand Company Loan Agreement is a formal written contract between a lender (which may be a company, financial institution, or individual) and a borrowing company, documenting the terms on which the lender agrees to advance a sum of money to the borrower. The agreement is governed primarily by the Contract and Commercial Law Act 2017 (CCLA), with the Companies Act 1993 applying to company-law aspects such as related-party transactions and solvency, which together establish the legal framework for company transactions and commercial contracts in New Zealand.

Unlike a simple promissory note, a Company Loan Agreement is a thorough document that sets out the full terms and conditions of the lending arrangement. These terms typically include the principal loan amount, the interest rate and how it is calculated, the repayment schedule (whether repayable on demand, on a fixed date, or by regular instalments), any security interest granted by the borrower (such as a General Security Agreement or mortgage), events of default, default interest provisions, and the respective rights and obligations of each party.

Company loan agreements are commonly used in a wide range of commercial lending scenarios in New Zealand, including inter-company loans within a corporate group, shareholder advances to a company, bank and non-bank lending to small and medium enterprises, and private debt financing for business acquisitions or expansion. For related-party loans — such as loans from a director to their own company or between companies under common ownership — the Companies Act 1993 imposes specific requirements that must be observed to confirm the transaction is valid and the directors are protected from personal liability.

Where the loan is secured by a security interest in personal property (such as accounts receivable, inventory, or equipment), the security interest is governed by the Personal Property Securities Act 1999 (PPSA). The lender should register a financing statement on the Personal Property Securities Register (PPSR) to perfect the security interest and gain priority over competing creditors in the event of the borrower's insolvency or liquidation under the Companies Act 1993.

A Company Loan Agreement should be used in any situation where one party is lending money to a New Zealand company and both parties want a clear, legally enforceable record of the terms of the loan. Although informal or undocumented lending between related companies is common in practice, it creates significant legal and tax risks — including the risk that undocumented advances are recharacterised as equity contributions by Inland Revenue (IR) or treated as unsecured debt ranking behind secured creditors in a liquidation.

You should use a Company Loan Agreement when a parent company or holding company is lending funds to a subsidiary for working capital or capital expenditure. You also need one when shareholders are advancing funds to a company they own, particularly where the advance is to be repaid with interest. The agreement is essential when a non-bank lender (such as a finance company or private investor) is lending to a business and wants security over the borrower's assets.

The agreement is also necessary when a company is borrowing from multiple lenders under a syndicated or club lending arrangement, requiring clear documentation of each lender's rights. Additionally, it is required when a company is acquiring another business and part of the purchase price is being funded by a vendor loan, and when an existing undocumented inter-company advance is being formalised to satisfy audit, tax, or regulatory requirements.

From a tax perspective, Inland Revenue requires that related-party loans be made on arm's-length terms — including a commercially reasonable interest rate — to avoid the risk that the interest deduction is denied or the advance is treated as a dividend or non-deductible distribution. The transfer pricing rules under the Income Tax Act 2007 may also apply to related-party loans involving non-resident lenders. A properly documented Company Loan Agreement demonstrates compliance with these requirements.

For loans involving security over personal property, the lender should also execute a General Security Agreement (GSA) and register on the PPSR promptly after drawdown to confirm the security interest is perfected.

A well-drafted New Zealand Company Loan Agreement should include the following key elements to be legally effective and commercially complete.

The parties must be clearly identified, with their full legal names and NZBN numbers, their registered addresses, and their legal status (whether incorporated under the Companies Act 1993 or otherwise). The loan amount must be stated precisely in New Zealand dollars, together with the mechanism for drawdown and the purpose for which the funds will be used.

The interest provisions must set out the annual interest rate, the calculation method (daily, monthly, or quarterly), and the payment frequency. Many inter-company loans are structured as interest-free, but Inland Revenue may challenge this where the parties are related and the loan is material in value.

The repayment terms must clearly specify the repayment structure — whether the loan is repayable on demand (with or without notice), on a fixed date, or by regular instalments. For instalment loans, the agreement should specify the amount and frequency of each instalment and the date of the first payment.

The security provisions should describe any collateral securing the loan, whether under a GSA, a specific asset mortgage, or a personal guarantee from a director or shareholder. Reference should be made to the PPSA and the PPSR registration obligations.

The default provisions must define the events of default clearly and specify the consequences — including the right to accelerate the loan and claim default interest at the rate of [Default Interest Rate]% per annum. The Companies Act 1993 remedies (including statutory demand and liquidation) should be noted.

Representations and warranties by the borrower (confirming incorporation, authority, and absence of conflict) provide additional protection for the lender. The governing law clause should confirm New Zealand law and the jurisdiction of the New Zealand courts. The forms-legal.com Company Loan Agreement (New Zealand) provides a ready-to-use template that meets New Zealand legal requirements.