Directors have personal liability for company debt in liquidation
A recent decision in the Court of Appeal* has made a director liable for almost $500,000 of company debt due to the company’s failure to keep adequate accounting records. The decision highlights the importance for directors to understand their duties under the Companies Act 1993. The Act requires directors to ensure that the company keeps proper financial records.
If you are a director and fail to keep adequate accounting records, and the company is unable to pay its debts in liquidation, then the court can make you personally liable if the failure has resulted in:
- Uncertainty of the company’s assets and liabilities
- The liquidator being impeded in the company’s liquidation, and/or
- The company’s insolvency has been caused by the failure.
The duty to keep proper accounting records is one of a number of duties that all directors have under the Act.
If you have any questions about what your duties might be, or what you need to do to fulfil those duties, please get in touch with us.
Electronic signatures – uses and risks
With the rise of technology, it is usually easier and faster for an agreement or terms to be accepted electronically, as opposed to the traditional signing of a physical document. However, how reliable is that electronic signature/acceptance if a dispute arises between the parties?
An ‘electronic signature’ can take many forms including a scanned image of the signature, a mouse mark on a screen, a signature signed by way of a stylus, or by a person agreeing to the terms and conditions by ticking a box on a web form which expressly provides that the person ticking the box agrees to be bound by all the relevant terms. For an agreement to be binding, the person agreeing to the terms must be able to read the terms before accepting them.
Electronic signatures are, arguably, less secure than a traditional signature because of the possibility of a third party intercepting the electronic document and extracting and using that signature. There is also no verification of who actually signed it.
The electronic transaction provisions of the Contract and Commercial Law Act 2017 provide that an electronic signature needs to be ‘as reliable as is appropriate’. This is assessed by whether:
- The means of creating the electronic signature is linked to the signatory and to no other person
- The means of creating the electronic signature was under the control of the signatory and of no other person
- Any alteration to the electronic signature made after the time of signing is detectable, and
- Where the purpose of the signature is to provide assurance of the integrity of the information to which it relates, any alteration made to that information after the time of signing is detectable.
Whether an electronic signature ‘is as reliable as appropriate’ depends on the circumstances. Where the sums involved are large and you have concerns about the enforceability of an agreement, it’s likely you would want to reduce the risks attached to electronic signatures. In this case, a ‘digital signature’ which incorporates increased security measures, is likely to be more appropriate.
A digital signature is a form of electronic signature which is more secure (less likely to be copied and the document less likely to be changed when emailed) than the above-mentioned forms of electronic signatures. A digital signature is produced using identity verification and is bound to the document with encryption.
The Tax Working Group: recommendations coming soon
The Tax Working Group (TWG), established by the government to consider the future of tax in New Zealand, intends publishing its recommendations very soon.
This report will follow the TWG’s September 2018 interim report that considered the possible introduction of a capital gains tax (CGT) in New Zealand. The details of how a CGT would work are yet to be clarified, as there are a number of different options that could be taken on implementation and the design detail of such a tax. It is hoped that the TWG’s report will provide further details.
It is anticipated that, even if the recommendations proposed by the TWG are accepted by the government, the introduction of a CGT is not likely to come into force until after the general election in 2020.
Further information on the Tax Working Group can be found here.
* Bishop Warden Property Holdings Ltd v Autumn Tree Ltd  NZCA 285