Convertible Loan Agreement Template for New Zealand

A convertible loan agreement is a flexible financing document that combines elements of debt and equity investment, allowing you to secure funding while maintaining the option to convert the loan into company shares. This sophisticated instrument is particularly valuable in New Zealand's startup and growth company landscape, where traditional bank lending may be difficult to secure and full equity valuations can be complex or premature.

When do you need this document?

You'll need a convertible loan agreement when seeking bridge financing before a major funding round, when investors want debt security with equity upside potential, or when your company requires immediate capital without the time and expense of conducting a full equity valuation. This document is essential for seed funding arrangements, pre-Series A investments, or when existing shareholders want to provide additional funding with conversion rights. It's also commonly used when companies need working capital during expansion phases or when preparing for larger institutional investment rounds.

Key legal considerations

Your convertible loan agreement must clearly define conversion triggers, such as qualified funding rounds, company valuation events, or specific dates. Interest rate provisions, repayment terms, and security arrangements require careful drafting to ensure enforceability under New Zealand contract law. You must address conversion mechanics, including discount rates, valuation caps, and the type of shares to be issued upon conversion. Default provisions, acceleration clauses, and investor rights during the loan term need precise definition. Consider including provisions for early repayment, automatic conversion scenarios, and what happens if conversion triggers aren't met within specified timeframes.

Legal requirements in New Zealand

Under the Companies Act 1993, your agreement must comply with share issuance procedures and directors' duties when conversion occurs. The Financial Markets Conduct Act 2013 may apply if you're offering securities to investors, requiring appropriate disclosure and potentially registration depending on the offering's nature and scope. You must ensure compliance with the Credit Contracts and Consumer Finance Act 2003 regarding disclosure requirements and responsible lending obligations. The Personal Property Securities Act 1999 governs any security interests created under the loan. Tax implications under the Tax Administration Act 1994 must be considered, particularly regarding interest deductibility and conversion tax treatment. Proper documentation and company resolutions are essential for legal validity and future enforceability.