Convertible Note Purchase Agreement Template for New Zealand

A Convertible Note Purchase Agreement is a sophisticated financial instrument that allows you to raise capital through debt that can later convert into equity. Under New Zealand law, this agreement must comply with the Financial Markets Conduct Act 2013 and provides a structured approach to bridge financing for growing companies.

When do you need this document?

You'll need a Convertible Note Purchase Agreement when your startup or growth company requires immediate funding but isn't ready for a full equity round. This situation commonly arises when you're between formal funding rounds, need capital to reach specific milestones, or want to close investment quickly without extensive valuation negotiations. The document is particularly valuable for pre-revenue companies where traditional equity valuation is challenging, or when you have committed investors ready to invest before your next major funding round. Technology startups, biotech companies, and other high-growth ventures frequently use convertible notes as their primary early-stage financing mechanism.

Key legal considerations

The agreement must clearly define conversion triggers, which typically include qualified financing rounds, company sales, or maturity dates. Interest rates, valuation caps, and conversion discounts require careful structuring to balance investor protection with company flexibility. You must ensure the conversion mechanics are mathematically sound and clearly documented to prevent disputes. Security provisions, if included, need proper registration and trustee arrangements. Default provisions should be reasonable and provide adequate cure periods. The agreement should address anti-dilution protections, information rights, and any board representation or investor consent requirements. Tax implications for both parties must be considered, particularly regarding interest deductibility and conversion timing.

Legal requirements in New Zealand

Under the Financial Markets Conduct Act 2013, convertible notes may constitute financial products requiring disclosure statements or product disclosure statements, depending on the offering circumstances and investor types. You must determine whether your offering falls under wholesale investor exemptions or requires retail investor protections. The Companies Act 1993 governs the company's authority to issue convertible securities and any required shareholder approvals. Directors must ensure the company is solvent before issuing notes and consider their duties under the Companies Act. The Credit Contracts and Consumer Credit Act 2003 may apply if lending to individuals. You must comply with any Foreign Investment Office requirements if foreign investors are involved. The Income Tax Act 2007 affects the deductibility of interest payments and the tax treatment of conversion events, requiring careful tax planning and advice.