Our legal system is a total joke!

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Ultimate Geek

#2947135 27-Jul-2022 22:38

There was a young duo in Christchurch who did what you are outlining fairly recently. From what I have heard, the Companies Office is very reluctant to use that provision in the Companies Act.

allio

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Ultimate Geek

#2947231 28-Jul-2022 10:06

This is the flip side of New Zealand being ranked as the "easiest place in the world to do business". Regulations aren't there for fun - they're generally there to protect the general public from fraud and abuse. No regulations = total freedom to rip people off. This is why everybody should be skeptical of political parties making calls to "cut red tape and make doing business easier". We already have less red tape than the rest of the world, and what we've got might be the only thing protecting you from cowboys.

Is being able to register a limited company in one day for $150 with no background checking a good thing? Depends whether you're asking the director or his customers...

Lias

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#2952696 9-Aug-2022 19:24

I've long maintained company directors should be personally liable for the debts of the company in every circumstances, and bankrupts should only be discharged when they have paid their debts in full. Bring back the workhouse.

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Geektastic

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#2952715 9-Aug-2022 20:20

Limited companies are broadly similar everywhere. It’s not just NZ.

Geektastic

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#2952716 9-Aug-2022 20:23

Lias:
I've long maintained company directors should be personally liable for the debts of the company in every circumstances, and bankrupts should only be discharged when they have paid their debts in full. Bring back the workhouse.

The workhouse would replace the dole.

You’re thinking of Debtor’s Prison. Alternatively in Ancient Rome and Greece, debtors could place themselves in slavery (or courts could put them there) until debts were paid.

Lias

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#2952821 10-Aug-2022 08:03

Geektastic:

You’re thinking of Debtor’s Prison. Alternatively in Ancient Rome and Greece, debtors could place themselves in slavery (or courts could put them there) until debts were paid.

That works :-)

MikeAqua

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#2952871 10-Aug-2022 10:15

Lias:

I've long maintained company directors should be personally liable for the debts of the company in every circumstances, and bankrupts should only be discharged when they have paid their debts in full. Bring back the workhouse.

The function of a limited company is that it limits the liabilities of the shareholders and directors. The objective is to encourage people to invest in businesses. Take thta incentive away and yiu'll gte less genuine p[eople prepared to take that risk. Debtors can seek director guarantees as an additional step.

In cases where criminal conduct is involved then yes, I think directors and officers of companies should be personally liable. One problem with that is when a criminal gets a custodial sentence, they seem to be absolved of financial responsibility for their offending.

Mike

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Lias

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#2952875 10-Aug-2022 10:34

MikeAqua:

Lias:

I've long maintained company directors should be personally liable for the debts of the company in every circumstances, and bankrupts should only be discharged when they have paid their debts in full. Bring back the workhouse.

The function of a limited company is that it limits the liabilities of the shareholders and directors. The objective is to encourage people to invest in businesses. Take thta incentive away and yiu'll gte less genuine p[eople prepared to take that risk. Debtors can seek director guarantees as an additional step.

In cases where criminal conduct is involved then yes, I think directors and officers of companies should be personally liable. One problem with that is when a criminal gets a custodial sentence, they seem to be absolved of financial responsibility for their offending.

I'm sorry but I don't agree that the threshold needs to be criminal conduct. They should have to prove they did everything possible to prevent the company folding, and if they can't reach that bar, they should lose their house/car/family trust/rolex/whatever.

GV27

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#2952884 10-Aug-2022 10:41

Lias:

I'm sorry but I don't agree that the threshold needs to be criminal conduct. They should have to prove they did everything possible to prevent the company folding, and if they can't reach that bar, they should lose their house/car/family trust/rolex/whatever.

What is 'everything possible'.

MikeB4

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#2952893 10-Aug-2022 10:50

Businesses fail, it is a fact of life. It is not the failure that is the problem it is the conduct around that failure. Circumstances change and these changes can be unforeseen by reasonable standards, E.G Covid lockdowns, supply chain disruption, natural disaster etc. There are oversights bodies in place to consider the circumstances of business and sanctions available. We don't need to return to draconian stupidity.

Lias

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#2952902 10-Aug-2022 11:06

MikeB4:

Businesses fail, it is a fact of life. It is not the failure that is the problem it is the conduct around that failure. Circumstances change and these changes can be unforeseen by reasonable standards, E.G Covid lockdowns, supply chain disruption, natural disaster etc. There are oversights bodies in place to consider the circumstances of business and sanctions available. We don't need to return to draconian stupidity.

When a business fails, the cost shouldn't be applied to other businesses thou. Right now we have a situation where a business can fail, all the sub contractors and suppliers get the shaft, and the directors walk away scot free. That's not right.

eracode

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#2952905 10-Aug-2022 11:25

MikeB4:

Businesses fail, it is a fact of life. It is not the failure that is the problem it is the conduct around that failure. Circumstances change and these changes can be unforeseen by reasonable standards, E.G Covid lockdowns, supply chain disruption, natural disaster etc. There are oversights bodies in place to consider the circumstances of business and sanctions available. We don't need to return to draconian stupidity.

You're right and here's a recent example.

In January last year, eight cafe workers were awarded nearly $150,000 after being abruptly fired just before the first nationwide Covid lockdown. The Employment Relations Authority ruled in favor of the former employees’ personal complaint, finding they had been terminated without cause.

When they weren't paid, they went back to the ERA but they then found that under the principle of limited liability, the cafe owners were not liable to pay them after the business had failed.

The owners of the business were found by the ERA to have acted properly and it was held that "Shareholders are not automatically required to meet any judgment debts of a failed company. That approach is consistent with the well-established principle of limited liability."

This principle applies to all people dealing with a company - not just employees as in this case.

https://www.nzherald.co.nz/nz/snells-beach-cafe-workers-still-waiting-for-unjustified-dismissal-payments/2RYQOUPAB5GCF6MJXIC7RUGVTE/

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MikeB4

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#2952952 10-Aug-2022 11:26

@Lias I agree to a point and there have been a few examples in the construction industry that have not been dealt with to the extent that sanctions could be imposed. An example where a building company fails on a Friday and new company registered on Monday, that is an example of bad conduct as I referred to in my original post.

I believe that directors of companies that have failed should have an automatic stand down from directorship until the circumstances and conduct of the failure is examined. I also believe that in the case of next week registrations the liabilities for the failed venture should be carried forward to the new venture.

richms

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#2952974 10-Aug-2022 12:20

eracode:

You're right and here's a recent example.

In January last year, eight cafe workers were awarded nearly $150,000 after being abruptly fired just before the first nationwide Covid lockdown. The Employment Relations Authority ruled in favor of the former employees’ personal complaint, finding they had been terminated without cause.

When they weren't paid, they went back to the ERA but they then found that under the principle of limited liability, the cafe owners were not liable to pay them after the business had failed.

The owners of the business were found by the ERA to have acted properly and it was held that "Shareholders are not automatically required to meet any judgment debts of a failed company. That approach is consistent with the well-established principle of limited liability."

This principle applies to all people dealing with a company - not just employees as in this case.

https://www.nzherald.co.nz/nz/snells-beach-cafe-workers-still-waiting-for-unjustified-dismissal-payments/2RYQOUPAB5GCF6MJXIC7RUGVTE/

So should I try to get a director liability clause in any employment contract in the future to get around this? This seems absurd that they can get away with this like that.

Richard rich.ms

MikeAqua

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#2952992 10-Aug-2022 12:42

Lias:

I'm sorry but I don't agree that the threshold needs to be criminal conduct. They should have to prove they did everything possible to prevent the company folding, and if they can't reach that bar, they should lose their house/car/family trust/rolex/whatever.

There are already provisions of the companies act that deal with trading while insolvent.

Major debtors like banks can seek personal guarantees from shareholders and/or directors.

There is point at which the risk will discourage honest people from starting businesses. There is always something else that could have been done.

Mike

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