Our legal system is a total joke!

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Mavok

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#298909 26-Jul-2022 19:45

So it turns out our legal system is a total joke. Anyone in NZ can register a Limited liability company for around $150 and then scam a bunch of people out of hundreds of thousands of dollars. They can do this by either doing terrible work or by taking deposits and never doing any work at all. I wish I was making this up!

Now one of their victims will take the scammer to the disputes tribunal and easily win (as the scammer won’t even show up). The problem is winning a disputes tribunal case doesn’t help much. All it does is it allows you to hire a debt collector and then pay around $5,000 to liquidate the scammer’s company. This of course gives the scammer plenty of time to empty any company accounts.

Now the liquidators will do an audit of transactions and discover the scammer withdrew money while the company was insolvent. The only problem is in order to then make the scammer personally liable, they would need to take the scammer to the high court and this will cost them around $500,000. It is very rare that liquidators would do this, as they would need to be super confident they could recover more than the court costs.

So, what is the outcome? The victims (aka unsecured creditors) get $0 back and the scammer just registers a new company for $150 and starts the whole process again.

So what about going to the police then? Unfortunately, they will all tell you the same thing: It is a civil case. We hear about these types of cases all the time. Just go to the disputes tribunal.

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#2946704 26-Jul-2022 20:07

Is liquidation a required step before the director responsibility liability can be applied?

gzt

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#2946706 26-Jul-2022 20:16

the scammer just registers a new company for $150 and starts the whole process again

The companies office has a provision to ban directors for only one case of mismanagement after assessing the evidence. It appears this process does not necessarily require a court judgement:

https://companies-register.companiesoffice.govt.nz/help-centre/company-directors/banned-directors/

Mavok

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#2946707 26-Jul-2022 20:22

Correct, that can be done for free. It can take a while though.

Mavok

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#2946709 26-Jul-2022 20:25

gzt: Is liquidation a required step before the director responsibility liability can be applied?

That's right. If you try and just take the director to the disputes tribunal then the application will be rejected because your contract was just with a company.

gzt

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#2946712 26-Jul-2022 20:41

The only problem is in order to then make the scammer personally liable, they [the liquidators] would need to take the scammer to the high court and this will cost them around $500,000. It is very rare that liquidators would do this, as they would need to be super confident they could recover more than the court costs.

This strikes me as being a very high figure for the kind of obviously malicious case you describe. The cost estimates I see for straightforward cases in the high court are a tiny fraction of this.

Mavok

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#2946724 26-Jul-2022 21:23

gzt:
The only problem is in order to then make the scammer personally liable, they [the liquidators] would need to take the scammer to the high court and this will cost them around $500,000. It is very rare that liquidators would do this, as they would need to be super confident they could recover more than the court costs.

This strikes me as being a very high figure for the kind of obviously malicious case you describe. The cost estimates I see for straightforward cases in the high court are a tiny fraction of this.

https://gerryrea.co.nz/why-dont-liquidators-sue-the-directors/?fbclid=IwAR0lkwzmV7u7p4D8AJ0uU3k4FLfedwWERy4HhGDv0XR8niiZFLnsHfUtm6Y

"The Court and legal costs for liquidators taking such an action can easily reach $100,000. If the liquidators lose, they will be required in addition, to pay the Court ordered costs of the defendant."

Also, I recently spoke to a liquidator from BDO who told me the legal costs could be around $500,000 even when there is clear evidence of director fraud.

gzt

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#2946753 26-Jul-2022 22:45

Your quote from that page brings it down from 500k to 100k. That is some improvement.

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gzt

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#2946756 26-Jul-2022 22:51

There is a further encouraging paragraph on that page:

Justice in New Zealand’s user pays environment is often beyond the reach of liquidators. However, section 301 of the Companies Act provides an opportunity, not just for liquidators but, for creditors to take action to recoup their losses to a company in liquidation. Where a director has misapplied money, been guilty of negligence, default of duty or trust, the Court may, on the application of a creditor, order the director to repay money or property or such compensation as it thinks just to that creditor.

xpd

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#2946771 27-Jul-2022 07:03

Fun part of it all, is the scum just start another company using a family member as director, and away they go again.

Parents went through it a few years ago with a builder.... turns out he had already been shut down for dodgy works previously, but because the company was started under a diff director name (But EXTREMELY similar company name), no alarm bells were rung.

Turns up in flash brand new Holden ute, takes the money, and leaves. Did it to about 30 people in a very short time frame, usually at least $10k each time.

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#2946778 27-Jul-2022 07:51

my lawyer (noob) stuffed up and cost me 20k

went to top lawyer who sorted it out so it doesn't cost me more (eg 200k)

asked if there's anything i can do to get back the 20k

was told the only way is to sue

to sue i need a barrister

cost start from 20k so not worth it

don't get cheap lawyer

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#2947030 27-Jul-2022 18:03

Batman: my lawyer (noob) stuffed up and cost me 20k

In relation to the topic this is relevant. Liquidators must follow statutory requirements with regard to funds recovery. This tends to make liquidators fairly conservative in most cases when considering legal action can expend funds.

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#2947039 27-Jul-2022 18:14

xpd: Turns up in flash brand new Holden ute, takes the money, and leaves. Did it to about 30 people in a very short time frame, usually at least $10k each time.

NZ Section 301 by some descriptions looks like it may be very helpful vs these characters in some cases. Particularly as it seems to apply to any party of the company acting improperly and action can be taken by any affected party:

Waterstone: This section also applies to others involved in the business. Specifically, a 301 action can also be taken against a liquidator, director, promoter or a manager of the company.

MadEngineer

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#2947040 27-Jul-2022 18:15

If you’re crediting someone 100s of 1000snds then you would have checked them for credit history. Sux to be you if you didn’t.

You're not on Atlantis anymore, Duncan Idaho.

Mavok

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#2947090 27-Jul-2022 20:12

MadEngineer: If you’re crediting someone 100s of 1000snds then you would have checked them for credit history. Sux to be you if you didn’t.

Sure, but how many people do a credit check first of the director of a company? Most people just check reviews or ask for recommendations from people they trust.

The guy who scammed us had already completed other jobs for us and had made a great first impression. Plus he had several positive reviews on Builderscrack.

He told me he lived locally and had a wife and kid. I had looked him up and sure enough, that was all correct. I didn't see any obvious red flags.

Also, paying 50% deposit for work is fairly standard.

Another person who got scammed by him did do a credit check on him and found he has 0 debt. So a credit check would have been useless anyway.

The guy's family isn't struggling and they recently purchased 2 new houses. They clearly have the means to repay everyone if they wanted to.

The guy knows the system really well and he hired a high-profile lawyer to deal with the liquidators.

And he is still operating a new company that he registered while his other company was in liquidation.

He's still out there right now scamming people. Even if he does get banned from being a director, he'll just start up a new company under a friend or family member.

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#2947134 27-Jul-2022 22:35

Mavok:

MadEngineer: If you’re crediting someone 100s of 1000snds then you would have checked them for credit history. Sux to be you if you didn’t.

Sure, but how many people do a credit check first of the director of a company? Most people just check reviews or ask for recommendations from people they trust.

The guy who scammed us had already completed other jobs for us and had made a great first impression. Plus he had several positive reviews on Builderscrack.

He told me he lived locally and had a wife and kid. I had looked him up and sure enough, that was all correct. I didn't see any obvious red flags.

Also, paying 50% deposit for work is fairly standard.

Another person who got scammed by him did do a credit check on him and found he has 0 debt. So a credit check would have been useless anyway.

The guy's family isn't struggling and they recently purchased 2 new houses. They clearly have the means to repay everyone if they wanted to.

The guy knows the system really well and he hired a high-profile lawyer to deal with the liquidators.

And he is still operating a new company that he registered while his other company was in liquidation.

He's still out there right now scamming people. Even if he does get banned from being a director, he'll just start up a new company under a friend or family member.

ScoMo's nephew had a fairly lucrative career ripping people off for a few years - https://www.youtube.com/watch?v=_tmLmpcHDgM

An update last year reported that he finally ended up in court where he received a suspended jail term and a $26,000 fine, which pales in comparison to the hundreds of thousands in deposits he took from people who trusted him after he told them his "my uncle is the prime minister" story.

Pretty much all the charges relate to carrying out building work without the appropriate qualifications, permits and licences - rather than the fact he took deposits, made a mess of people's homes, and then ghosted them. It seems this modus operandi is also easy to get away with in Australia too.

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