Benjamin Franklin said, “There are only two certainties in life – death and taxes”. Whilst failure to pay the second shouldn’t lead to the first, it can cause significant problems for individuals, as outlined in a recent Court decision.
Nicola Joy Dargie was sentenced to two years six months imprisonment for failing to pay PAYE deducted from employees’ salary to the IRD.
Ms Dargie’s explanation for the non-payment of $740,000, which occurred over a period of 10 years, was that she had withheld the tax payments from the IRD to keep her employees in a job.
It is a practice that we encounter on a reasonably regular basis in liquidations - directors using the amounts they have deducted from their employees’ wages for things such as PAYE, Kiwisaver, Child Support and Student Loans, to boost the cashflow of their business. Their priority being to keep suppliers paid so they can continue to employ staff.
There are several problems with this course of action.
First and foremost, the funds are not the directors, or the company’s, to spend. They are the employees’ funds deducted from their wage entitlement for specific purposes and should be held in trust.
Secondly, there can be severe penalties imposed on directors who follow this course, as evidenced by the sentence imposed on Ms Dargie.
Thirdly, even if the intention was that the payments would be withheld for only a short time, to get through a tough trading period for example, the penalties and interest charged by the IRD for non-payment are at such a level that it does not make economic sense to do it. It would be better (and safer) to go to the bank for a short-term loan.
By continuing to operate a business that is not able to pay its debts, including taxes, as they fall due, directors expose themselves to potential claims against them personally that they have breached their duties as directors by trading whilst insolvent.
The amounts deducted from employees’ wages, and, to a similar degree, the GST collected on sales, are not funds available to a company to cover operating expenses and pay trade suppliers. These funds should be put into a separate account and only accessed to pay to the IRD as they fall due.
If directors find themselves in the position of having to dip into those funds to pay other expenses, then they need to review the financial position of the company to assess its on-going viability.
If you are in arrears with PAYE you are in a far better position if you consult with IRD and reach an instalment plan on arrears. If hardship applies, then notify IRD early on. If the company is insolvent, consult an accredited insolvency practitioner.
If you would like more information or advice on managing tax payments and the solvency of your business, please contact one of the team at McDonald Vague.
In our previous article, Internal Fraud – The Threat from Within (April 2017), we gave a broad outline of the basic steps that can be taken to help reduce the chances of internal fraud and increase the chances of fraud being identified if it is happening.
This article sets out in a bit more detail some of the policies and procedures you should consider implementing in your business, if they are not already in place. The size of your business, and the number of employees involved, will have a bearing on what can be done.
The employees of a company can be its greatest asset or its greatest liability. Employing the wrong person can have a devastating effect on the well-being of the company if they are able to cause financial or reputational damage.
There are no employment policies or procedures that will guarantee that an employee will not cause problems but having a good, robust process in place when employing a new person will give you the best chance of identifying issues before the candidate starts work.
• Do due diligence and make a proper assessment of the applicants who are applying for the position. Are there any gaps in their CV that need explanation?
• Establish the relationship between the applicant and the named referees and make personal contact with each referee. Are they independent enough that you can rely on their assessment of the applicant?
• Make any offer of employment conditional on getting a clear reference from the applicant’s current employer if they have asked you not to contact them until a position is offered. If the applicant won’t accept that condition you would want to know why.
• Take your time to assess the trustworthiness of the new employee before handing over access to bank accounts etc.
As with the employment process, there are no accounting policies and procedures, other than doing everything yourself, that will absolutely prevent any form of fraud being committed by an employee but having the right ones in place should lessen the chances of it happening and increase the chances of you finding it quickly if it does.
• As far as possible, separate the duties of staff so that no individual can control all aspects of a transaction – from ordering of stock or issuing purchase orders, to receiving the supplier’s invoice, to making payment of that invoice and reconciling the bank accounts;
• If your business is a small one and there is only one person responsible for the office administration, then you personally should be the one who clears and checks the mail and the one who carries out final checks on creditor batch payments and authorises the payments to be made.
• Have set systems and procedures in place for making payments that all staff are aware of and follow;
• Conduct stock reconciliations;
• Carry out spot checks, at irregular times, to ensure policies and procedures are being followed. Remember that the higher up the management hierarchy an employee is the greater the damage they can do to the business.
• Have a “whistle blower” policy in place and ensure that all staff have the confidence to report any activity by other employees that is in breach of the systems and procedures.
• As director, ensure that you understand the company’s financial performance and position, by monitoring transactions through the company’s bank accounts and regularly obtaining and reviewing profit and loss and cashflow information for the business;
• If there is any change in the financial performance or position that is not able to be explained by the trading conditions, investigate.
When you, as director of the company, are heavily involved in doing the work of your business, it is very easy to allow staff to look after the administration with little or no oversight, but the risks of doing so are high and the consequences, if an employee is defrauding your company, can be catastrophic.
If, from the beginning, all staff are aware of the policies and procedures that are in place and know that you will be checking on what they are doing, for their protection as much as for the business, this should reduce the chances of fraud occurring and increase the chances of identifying the fraud if it is.
If you would like more information or advice on your business systems and procedures, please contact McDonald Vague.
As a landlord of commercial property it is important for you to understand your rights and responsibilities to ensure you don’t inadvertently breach legislation and obligations. If you do, you may face significant liability.
A Deed of Lease details the relationship and terms/conditions between a commercial landlord and tenant. The Property Law Act 2007 (“PLA”) defines rights and obligations of landlords and tenants. The Unit Titles Act 2010 can also apply if the property is a unit title.
A commercial landlord has obligations to comply with the Building Act 2004 and Building Code and to complete a building warrant of fitness for Council.
A commercial landlord also has obligations to maintain the building, comply with health and safety standards. A tenant has obligations to maintain the premises and the Deed will often extend to obligations as to damage/loss, painting, floor coverings, rubbish removal, etc.
If the tenant is in breach of its obligations to the landlord, the landlord may be entitled to terminate the lease. Where a landlord wants to terminate a lease, the PLA requires notice to be served on the tenant in accordance with section 245 of the Property Law Act 2007.
The notice of intention to cancel a lease must expire before a landlord re-enters the premises. A notice must be sent setting out the nature of the breach and remedy required and the rights of the tenant.
The PLA says a landlord may only cancel a lease for non-payment of rent, if rent is at least 10 working days in arrears. A landlord may also cancel for reason of insolvency, liquidation or bankruptcy of the tenant. Once the statutory timeframe expires the landlord can re-enter and seek to mitigate its loss by re letting the premises. The landlord however needs to be wary of the rights of secured creditors to the company assets. There are however a myriad of priority issues that need to be considered and the landlord must give notice and reasonable time for the chattels to be removed.
What If Your Commercial Tenant Goes Bust?
A good commercial lease contains ‘ipso facto’ clauses, which specifically provide for insolvency, which is usually triggered by the tenant entering into liquidation or administration or receivership or becoming bankrupt. The lease usually survives the appointment of an administrator or receiver but may end on liquidation.
A landlord can seek judgment against the guarantor and following judgment issue bankruptcy proceedings against a guarantor on failure to pay.
Tenants by vacating the premises and leaving rents in arrears are not released from their legal liability. While the lease remains on foot, rent continues to accrue, and the tenant and guarantors are liable. The tenant under the Deed of Lease may be required to continue the lease obligation for the balance of the term of lease and can be liable for reasonable costs incurred in re-tenanting the premises. If the company has no ability to pay, a guarantor may be pursued.
A landlord can issue a statutory demand and following failure to make payment under that demand issue winding up proceedings against their tenant company if there is a failure to pay, a default under the terms of the lease and suspicion of insolvency.
Often landlords protect their position by requiring some form of deposit or a bank guarantee to avoid the more costly recovery options and for better protection.
A landlord has no right to take possession of the tenants’ belongings and sell them to cover unpaid rent. Some more current deeds of lease however can now require the tenant company to grant a GSA at the same time as granting the lease. Depending on the wording, this can provide the landlord with the entitlement to recovery of fixtures and fittings and potentially chattels. A well drafted Deed that grants security in assets can provide protection to the landlord in the event of insolvency of their tenant.
Most Deeds of Lease provide for the termination of lease in the event of the tenants’ company being placed into liquidation. If there are arrears, the landlord is entitled to file a claim in the liquidation.
Often a liquidator will seek to trade or to occupy the premises for a period to realise value in the company assets.
If the company occupies the premises then the liquidator can be liable for payment of rent from the date of liquidation. A liquidator may disclaim the lease at which time the rights and obligations of the tenant end.
In Receivership, a receiver has no right to disclaim a lease and can be held personally liable for rent and lease payments from 14 days after the appointment date until the occupation ends or receivership ends.
Most Deeds of Lease will allow the landlord to cancel the lease if a Receiver is appointed.
Liquidation or Receivership will more often than not end the landlord and tenant relationship.
Overall, a Landlord’s rights depend on the terms of their Lease Agreement. Always include specific provisions for liquidation or receivership or administration in a commercial lease. Remember, if the lessor has not given the tenant the notice specified in a commercial lease before enforcing a right of re-entry, the tenant may have remedies against the lessor and apply to the court for relief.
A well documented Deed of Lease will provide for a deposit or bank guarantee, a personal guarantee and/or general security over specific assets such as fixtures and fittings.
If your commercial tenant has vacated leaving rent arrears, or is potentially trading insolvently contact McDonald Vague as an option may be to start the winding up process.
A General Security Agreement (GSA) is a document recording a security provided by a debtor company to its creditor over a specific group of assets or over all assets of the business. The GSA records the terms which include a right of the creditor to register their interest on the Personal Property Securities Register (PPSR) so that there is a public record of that financial interest in the assets of the debtor company.
We always recommend to directors/shareholders investing moneys into their business on start-up that they attend to completing the appropriate loan documentation (between company and individual) and a General Security Agreement recording the terms. It is important that this GSA is registered on the PPSR. It is also important that the registration is maintained and updated every five years to preserve the position as secured creditor.
The registration on the PPSR is an important step and “perfects” the security interest. Perfection of the security interest and the timing of that perfection establishes the order of priority of secured parties who have an interest in the company assets.
The main exception to the priority rule is the Personal Money Security Interest (PMSI) which is where a supplier of goods or equipment takes a security over the goods supplied (but not yet paid). For example, a hire purchase agreement over a refrigerator or a loan by a Finance Company secured over a motor vehicle (a serial numbered good). A PMSI creditor has “super” priority for the recovery of their unpaid goods and/or equipment.
The first to register on the PPSR will usually have priority in the event of insolvency – unless there has been a Deed of subordination between secured parties changing the priority or if the security is not valid.
Under a GSA, a debtor has obligations to the secured creditor to pay amounts owing to the secured party when due, to perform obligations under any agreement, not to allow another party to take security in the same assets without consent, or not to change control of the company without consent.
An important right under a GSA, is for a secured creditor following a default by the debtor, to appoint a Receiver, who then takes control and takes steps to pay the secured creditor.
It is common for banks when they advance moneys to a company that they do this by way of a GSA.
To maintain priority, the GSA needs to be registered immediately on execution of the GSA.
A financing statement has a life of 5 years and then falls off the register. It must be renewed before it lapses, or priority is lost;
The collateral description and accuracy with the registration of the security on the PPSR is important. If there are material discrepancies the security can be invalid.
It is important to register on the PPSR. It is the difference between having some right of recovery and running the risk of losing it all if the debtor company fails leaving a shortfall to creditors.
It is common in New Zealand for the directors and shareholders of small companies to be the same people and many are also employees of the company – executive directors. Whether this is in the form of a family owned business or a just a small to medium sized enterprise made up of unrelated individuals this involvement on all levels can create difficulties.
The advantage of such a set up is that the individuals are motivated to make the business work and be profitable.
The downside is that the closed nature of the board can leave gaps in the knowledge and experience held by the directors and their closeness to the business can lead to subjective decision making.
Depending on the numbers on the board, this can also lead to a stalemate position if there is a difference of opinion on matters requiring board approval.
There are two other types of directors that can be brought into the board to help address these issues, non-executive directors and independent directors.
Whilst both can address the lack of knowledge and experience, a non-executive director may be representing a shareholder and, therefore, may not act without some bias.
An independent director will generally have no links with the company, other than sitting on the board, and have no affiliation to any of the other directors or shareholders.
A liquidation that we have been conducting involves a company with two directors with the shares held by entities associated with each of the directors. One director was an executive director, employed by the company. Two further non-executive directors were appointed to the board – one nominated by each of the other directors.
The board functioned properly, and in unity, until the company faced financial issues.
When the issues were identified, one director made a proposal to restructure the company’s business in an effort to remedy the problems. The restructure proposal was not accepted by the other executive director and, when it went to a vote, the non-executive directors voted with their appointer so there were two in favour and two against – stalemate.
As a consequence, the company continued to trade for a period and left all four directors with a potential liability for breaches of their duties as director.
The closely aligned shareholder interests did not want to change the boardroom dynamic by resigning as directors, or voting against their appointors interests and/or personal views. In the end the directors settled with the liquidator.
A truly independent director, with no affiliation to the other directors or the shareholding parties, could have looked at the restructure proposal in an objective way.
There is no way to know what decision an independent director might have made in the liquidation referred to above but at least a decision would have been made, and action taken accordingly, rather than having the company in limbo.
If you would like more information on appointment of directors and directors’ duties, please contact one of the team at McDonald Vague.
With financial year end, one of the considerations fresh in the minds of business owners and their advisors is the decision regarding appropriate directors’ remuneration.
In a previous article we reviewed the case of Madsen-Ries and Vance v Petera  NZHC 538. In this article, we consider an issue on appeal by the liquidators of Petranz Limited (“the company”) as to whether salaries paid by the company to the directors were fair to the company when they were paid (Madsen-Ries v Petera  NZCA 103). This article will also cover where creditor considerations fit in with such decision making, and the appropriate remedies for creditors if things go wrong.
Mr and Mrs Petera were the sole directors and shareholders of the company, which carried on business between 2002 and 2009 as a cartage contractor. Mr Petera drove one of the company’s trucks, and Mrs Petera worked on administrative tasks.
During this time, the company made various non-business related payments that the Court deemed shareholder drawings, which caused their shareholder current accounts to be overdrawn. However, regarding salaries, in contrast to journalising director salaries at year end, the company paid the Peteras regular fixed amounts between October 2007 and May 2008. During this period the salaries were declared and PAYE paid to the IRD.
In the High Court, the liquidators of the company sued the Peteras for:
- Compensation for breaches of various directors’ duties,
- Repayment of overdrawn shareholder current accounts,
- Repayment of directors’ salaries they argued were unfair to the company at the time they were paid.
In addition to the repayment of the Peteras’ shareholder current accounts, the liquidators claimed a total of $453,003.33 for breach of director’s duties, including $132,255.09 for creditor claims and $321,647.64 for liquidators’ costs up to and including the trial. At the time of liquidation, the company owed creditors $132,555.33.
The High Court, considered the extent of the liquidators’ claim, and stated that their approach to this type of litigation was “ …neither cost effective nor proportionate” to the claim involved, and went against the intentions of the Companies Act 1993 (“the Act”).
Justice Lang found that the language and intent of sections 300 and 301 of the Act narrowed the issues to:
- The amount of compensation to the company that should be paid by the Peteras for reckless trading for actual loss, and
- the amount of personal liability for failure to keep proper accounting records.
Justice Lang found the Peteras had breached various director’s duties under the Act: s 131 (to act in good faith and in the best interest of the company), s 135 (not to allow the company to be operated in a manner likely to create a risk of serious loss to creditors), s 136 (not to permit the company to incur debts unless they objectively believe the company will be able to repay those debts), and s 137 (to exercise the reasonable care, diligence and skill that a reasonable director would in the same circumstances).
For their breach of directors’ duties, Justice Lang ordered the Peteras to repay the company $64,708, being the losses suffered by the Commissioner of Inland Revenue from the time he determined that they should have stopped trading (31 July 2006).
The Court of Appeal approved of the decision by Justice Lang, to order payment of $64,708 as appropriate compensation to the company for breach of duty not to trade recklessly (s 135 of the Act). The amount determined as compensation also effectively limited the liquidators’ further claims under this cause of action.
The parties agreed that the directors had failed to comply with the procedures in s 161 of the Companies Act 1993 (“the Act”). The payments were not authorised by the board of directors (s 161(1), not recorded in the company’s interests register (s 161(2)), and finally the directors had not produced a certificate that the payments were fair to the company at the time they were made (s 161(4)).
Under s 161(5) the directors would be personally liable to repay their salaries unless they could show the payments were fair to the company at the time they were made.
In the High Court Justice Lang determined the salary payments were fair to the company at the times they were made, and allowed the Peteras to retain their salaries on the basis that:
- “(the liquidators’ concerns) are answered to some extent by the fact that the company paid PAYE in respect of those payments. To that extent the debt owing to the Commissioner did not become larger during the period in which the payments were made” , and
- “the company gained full value from the work carried out” , and
- “the company was able to derive profit from Mr Petera’s work because it was able to charge customers for the driving duties he undertook on the company’s behalf” and “the company’s administrative needs were handled by Mrs Petera” .
In the Court of Appeal, the liquidators argued that the requirements that the salary payments be fair to the company, reflected the directors’ fiduciary duty of good faith (s 131 of the Act), and that they owed a duty to consider the fairness of the payments in relation to their effect on creditors’ interests, especially given the poor financial situation of the company at the time. The liquidators argued that, from the date of insolvency, the directors should have stopped trading and stopped paying themselves a salary (which would have protected creditor interests by preserving the company’s assets such as they were at the time).
The Court of Appeal however disagreed, and stated:
“ The scheme of the Act is that creditors’ interests are a relevant consideration for directors where the directors authorise distributions and other transfers of benefit by a company to its shareholders. In those circumstances the Act uses the solvency test, not the concept of fairness, to protect creditor interests. Where directors are called upon to authorise transactions in which the interests of the company on the one hand, and its directors or shareholders on the other, may diverge (including the payment of their remuneration), the Act uses the concept of fairness. The issue for the directors in those circumstances is fairness as between directors and the company. When certifying fairness, including where required by s 161, directors do not need to consider creditor interests. Directors may nevertheless be liable to contribute to an insolvent company’s assets to reflect losses attributable to the payment of director remuneration and, in turn, a company’s failure to meet its obligations to creditors. Such liability could arise under s 301, by reference to a breach of the s 135 duty not to trade recklessly.”
The liquidators then sought leave to appeal to the Supreme Court, which although it accepted “ that the interpretation of the phrase “fair to the company” in s 161 raises an arguable issue of general importance”, declined to hear the appeal.
The Supreme Court found that such an appeal would require the Court to consider both a legal argument and conduct its own assessment of whether the payments were fair to the company, which it would not normally do, being a matter of “ application rather than principle”.
The Supreme Court also noted its concern over proportionality, given the amount already awarded in the High Court, the low level of company debt and the large claim of the liquidators.
Lastly, given the poor financial situation of the Peteras, who were facing bankruptcy, a further award against them would likely have no practical effect.
Regarding director remuneration, there is a distinction between fairness to creditors and fairness to the company. The duty of fairness is owed by directors to the company and indirectly to creditors, whose interests are directly addressed through solvency provisions and the enforcement of directors’ duties such as the duty not to trade recklessly.
The intent of sections 300 and 301 of the Act is to compensate the company and creditors for actual losses, and any further amounts claimed, such as liquidation costs, must be reasonable and proportional to the debts owed by the company.
Although s 161 contains a means of clawback of directors’ salaries, to claim both under this heading and the reckless trading provisions would involve a duplication of claim, and such approach has been rejected by the Court.
Nevertheless, directors must still take care to follow the procedures set out in s 161, and ensure their salaries are fair to the company at the time the salaries are paid.
Finally, if salaries are being paid to directors whilst ordinary creditors are not being paid, the company’s future viability should be reviewed. McDonald Vague can assist with that process.
If your business supplies goods to customers on credit, your terms of trade should include clauses relating to the PPSR. If your terms have PPSR provisions but you have not been registering those interests on the PPSR, you should start.
Once you are granted a security interest, you can (and should) register that interest on the PPSR as soon as possible. Registering your security interests on the PPSR is easy. It only takes a few minutes and the registration process can be completed online. The fee for registering your financing statement on the PPSR is $20.00. Your financing statement lasts five years but it can be renewed, if you still need it when it comes up for renewal.
The main benefit of having your financing statement registered on the PPSR is that, if your customer goes into liquidation or has receivers appointed, your goods will not be available to the general body of unsecured creditors. As a secured creditor, you can take back your goods (provided they have not yet been paid for) or, if your goods have been sold, you can trace into the proceeds of sale of your goods (when your goods are paid for by a third party).
If you don’t register your security interest on the PPSR and another creditor has been given and registered a General Security Agreement (“GSA”), the GSA holder will have priority over your goods. We often deal with creditors who have registered their security interests on the PPSR too late, if at all, and have lost their priority in goods to other parties’ security interests.
It’s a good idea to review your internal PPSR procedures on a regular basis. If you think it’s time for a review or you want to discuss how you can use the PPSR to your best advantage, get in touch with the team at McDonald Vague.
If you're thinking about starting your own business, buying into a franchise can seem like a good option. Being part of a franchise means you will be part of an established brand with name recognition, group marketing strategies, and business plans.
The advantages that come with buying into a franchise come at a cost. In addition to the purchase price, you will have business set up costs, marketing fees, and training fees to pay. You will also have obligations to the franchisor to run your business in line with the franchisor’s brand, its image, and its processes.
When deciding whether to buy into a franchise, you will need to look at whether you have the technical skills, ability, and industry understanding to make the franchise work. You will also need to consider whether you have the ability to implement your own marketing strategy and business plan, which must align with the franchisor's brand and image – if you’re operating outside the terms of the franchise agreement, the franchisor may step in.
You also need to work out what the business is really going to cost you and how much it's going to make. Some franchise agreements require you to pay for ongoing marketing, training, and products. These additional costs really add up so it's important to conduct a business health check – and stress test it – as part of your due diligence. If your business is going through a bit of a tough patch, you may end up in a position where paying rent and franchise fees does not leave enough for your business to get by.
If you are a franchisee and your business is in financial trouble, or it may be heading that way, it is important that you get advice early. Not only do you need to consider whether you are breaching your director’s duties by continuing to trade, you also need to consider the consequences of insolvency under the franchise agreement.
If you think the problem is the franchise fees and that a hive down of your business might be the easy answer, think again. It's unlikely to be that simple. Most franchise agreements contain restraint of trade clauses that will stop you from leaving the franchise then immediately setting up in direct competition with the franchise. Some franchisors hold the leases for the franchisee’s premises, which could allow the franchisor to put another franchisee in the premises. Some franchisors hold the supply agreements with suppliers and act as a middle man in the supply chain. Some franchise agreements allow the franchisor to step in if the franchisee becomes insolvent. Most limit the franchisee’s ability to on-sell the franchise to a third party without the franchisor’s approval.
Buying into a franchise can be a great idea but it's really important to know what you're getting into. If you’re starting out, your franchise isn’t going to make anywhere near what the established top performing franchisees are making. It is important that you work out what the business is going to cost you to run and how much money it’s likely to make in both the short term and the long term. Only then can you decide whether you can make it work. Once you’re in, you need to monitor how your business is doing and whether you’re on track.
If you're thinking about buying into a franchise or you’re worried about your existing franchise, give us a call. We can help. You can also head to read more helpful articles on our website.
No one is immune to being targeted by scammers. People from all walks of life, backgrounds and ages are vulnerable, and everyone must be constantly alert for fraudulent contact, says Auckland business advisory firm McDonald Vague.
“With this week (13-19 November) being Fraud Awareness Week, we want to remind Aucklanders of the dangers of scams and the need to be vigilant. We all receive junk emails, enticing online advertisements, letters offering a private purchase of shares for a low price, phone calls from people purporting to be people who they are not, and so on,” explains Peri Finnigan, director of McDonald Vague.
Ms Finnigan says that her firm is focussing on telling its clients about the need to be careful about business and financial scams. These are the scams that encourage the private purchase of shares and/or property, participation in an investment scheme or a manged fund, investing in a particular business proposal or paying fraudulent invoices.
“These proposals and communications tend to look very credible and, on the surface, perfectly viable. But of course they’re all designed to steal your money. Tax scams are also prevalent where you’re contacted by someone, either online or on the phone, by someone saying they’re from the Inland Revenue or a tax specialist. The IRD will not contact you in this way, nor will any genuine tax specialist.”
McDonald Vague has sent its clients a checklist that will help avoid investing in scams. It includes links to the Financial Markets Authority’s website so clients can check they’re using a registered New Zealand broker or investor, a link to check scam alerts and so on. The firm is also sending these clients a list of ways to help keep themselves safe, and what to do if they think they’ve been scammed.
Ms Finnigan concludes, “As business advisors, we’re also available to help ascertain whether a business proposal is worth considering. The usual advice is, however, if the offer or return seems too good to be true, it probably is!”
McDonald Vague Ltd is a member of NZ CA Limited. NZ CA is an association of independent chartered accountants located throughout New Zealand. NZ CA’s mission is to support its 28 member firms improve their business delivery to their valued clients.
Keeping yourself safe
It’s important to keep yourself safe from scams online. These include:
More information can be found at www.nzca.com.
On your business card, it says you’re the director of your company. But what does that actually mean?
Not all business owners understand that being a director comes with specific duties under the law. It’s important you understand these duties and expectations, because if your company gets into trouble, your personal finances could be put at risk.
In this article we look at the director duties and responsibilities in NZ, and how you might be have some personal liability if your company becomes insolvent.
The Companies Act 1993 lays out the responsibilities of directors, which are called “Director’s Duties.” We wrote an extensive article about director’s duties, which you can look to for more information. But the main responsibilities of the director are to:
If your company is declared insolvent or you do not fulfil your duties under the Companies Act 1993, you as the director can be held personally liable under the following circumstances:
If you sign a solvency certificate knowing it is misleading or false, you are committing an offence, and are liable for a fine of up to $20,000, or you could go to prison for up to five years. Likewise, directors who vote for a distribution, but then don’t sign the certificate, are liable on conviction for a $5,000 fine. The directors can also be required to reimburse the company for the distribution paid if the transaction occurs within a specific period preceding liquidation.
The risk of personal liability are too great to take lightly. That’s why it’s important you understand all your duties as a director under the law, and if you’re worried about the solvency process, talk to the professional team at McDonald Vague. We can give you the best plan for managing your company through tough times.