When the Government appointed Messrs Hunn, Bond & Kernohan to enquire into the causes of the leaky building syndrome in 2002 (they were called “The Overview Group on Weathertightness”) they took it upon themselves to investigate and report on all the failings of the construction industry in New Zealand. In their otherwise excellent report (issued in two parts on 31 August & 31 October 2002) they offered the following comments:
“it is understood that [the Companies Act] offers little … protection to a home-builder/buyer consumer in the event of the vendor company … being put into voluntary liquidation by the directors”
“there is currently nothing to stop the unscrupulous … builder from liquidating their company … to avoid claims and action from dissatisfied purchasers”
The proposed law to criminalise serious breaches of directors’ duties has recently undergone significant changes when Supplementary Order Paper (SOP) 403 was released on 19 November 2013.
This is the second revision of its kind and was done in anticipation of the Committee of the Whole House stage. By way of background, the Companies and Limited Partnerships Amendment Bill (the Bill) was introduced in 2011 with a view to tightening controls around company management and raising business confidence to ensure New Zealand continues to attract steady domestic and international investment. Two major events contributed to the introduction of the Bill.
Clause 4 of the Companies and Limited Partnerships Amendment Bill 2011 has so far enjoyed an only brief but an eventful life
It was conceived as part of a wider reform introduced in response to the public pressure faced by the Government following a wave of finance company collapses and the ensuing directors’ prosecutions. The media added fuel to the fire by painting the picture of the directors’ ‘egregious’ conduct, and the regulators looked to Parliament to create additional powers to take action against such directors.
Many New Zealanders are directors or officers of companies.
That is simply because many New Zealanders own and operate their own businesses, and they usually trade through a company. Every company must have at least one director, and it is the directors who are charged with managing the company on a day-to-day basis. However they can (and do) delegate most of their responsibilities to the company’s employees, as long as they supervise those employees periodically. The most senior employees are known as the “officers”, and typically they are the people with some kind of title such as Chief Executive Officer, Public Relations Manager or Marketing Director.
Under our company law, shareholders do not have to bail the company out if it cannot pay its bills.
The same is true of directors. They will not be held responsible if they have tried their best, but the company could not raise enough cash to pay its creditors. The only creditors that the directors and shareholders personally have to pay, are the ones they have given personal guarantees to, such as the bank, the landlord, and the major suppliers. But it is different if they actively work for the company, and they make a blunder that causes someone significant loss. If they do their job recklessly, they can be just as liable as their company is, and in that situation the term “limited liability” is no more than a myth.
Limited liability was recognised in English law as early as the 1400s, but it was not until 1855 that the first Limited Liability Act was passed.
Traders weren’t prepared to embark on speculative ventures if they had to risk losing everything, including their personal assets, so this law gave them the protection they needed. If the company went bust, they didn’t have to pump in any more money than the amount they had originally invested or promised to invest.
A lot of New Zealanders are directors or officers of companies.
That is simply because a lot of New Zealanders have their own businesses, and they usually trade through a company. Every company has to have at least one director, and they are the people who run the company on a day-to-day basis. However they can delegate most of their responsibilities to the company’s employees, as long as they supervise those employees periodically. The most senior employees are known as “officers”, and they are the people with some kind of title such as Chief Executive Officer, Public Relations Manager or Marketing Director.
When you sell goods and services on credit, you run a risk, and that risk is that your customer won’t pay you.
That could be because they don’t like the quality or standard of the goods or services you have supplied, or it could be because they are short of money. If they are short of money, chances are that there are a lot of other suppliers who haven’t been paid as well. In that case there is going to be a contest between you and the other creditors as to who gets paid first. And that will come down to who is the most resourceful when it comes to putting pressure on the debtor.
By and large, New Zealand’s high-wealth individuals earn their money, through self-belief, courage, hard work, determination, and ambition.
They may have an uncompromising side to them, and they may have no qualms about taking advantage of their fellow humans’ lack of drive, but generally they compete fairly.
The rules that apply to companies are found in the Companies Act 1993, supplemented by the case law which fills the gaps where the Companies Act doesn’t cover a particular situation.
The Companies Act also allows companies to modify some of the rules to suit their special needs, by adopting an additional set of rules known as the constitution.