Secured Convertible Promissory Note Template for New Zealand

A Secured Convertible Promissory Note is a sophisticated financing instrument that combines the security of debt with the potential upside of equity investment. This document creates a legally binding loan agreement where the lender provides funds to a company with the option to convert the debt into shares under predetermined conditions. In New Zealand, this instrument must comply with multiple regulatory frameworks to ensure enforceability and proper security registration.

When do you need this document?

You need a Secured Convertible Promissory Note when your company requires immediate capital but wants to defer equity valuation discussions until a future funding round. This situation commonly arises during bridge financing scenarios where companies need working capital while preparing for Series A or subsequent investment rounds. The document is particularly valuable when investors want debt security but also seek exposure to potential equity appreciation. You'll also need this instrument when existing investors want to provide additional funding on conversion terms that align with future equity rounds, or when strategic investors require security backing their investment while maintaining conversion flexibility.

Key legal considerations

The security provisions require careful attention as they must comply with New Zealand's Personal Property Securities Act 1999, including proper registration of security interests on the Personal Property Securities Register. You must clearly define conversion triggers, which typically include qualified financing events, maturity dates, or company sale scenarios. Interest calculations and payment terms need precise documentation to avoid disputes, particularly regarding compound interest and default provisions. The conversion mechanics must specify the methodology for determining conversion prices, anti-dilution protections, and any caps or discounts applicable to future equity rounds. Consider including appropriate representations and warranties from the company regarding its legal status, financial condition, and ability to perform under the agreement.

Legal requirements in New Zealand

Under the Companies Act 1993, any share issuance resulting from conversion must comply with company constitution requirements and director duties regarding share allotments. The Financial Markets Conduct Act 2013 may apply if you're offering notes to retail investors or multiple parties, potentially requiring disclosure documents or exemption reliance. Security interests must be registered within the prescribed timeframes under the Personal Property Securities Act 1999 to maintain priority over unsecured creditors. The Contract and Commercial Law Act 2017 governs the fundamental enforceability of the promissory note terms, including interest rate restrictions and penalty provisions. Companies must ensure board resolutions authorize both the borrowing and potential future share issuance, with proper documentation of director approvals and compliance with any shareholder approval requirements under the company's constitution.