The High Court recently found a company director liable for over $160,000 of tax and interest owed by the company to the IRD.
The company, a builder of residential houses, racked up nearly $200,000 of unpaid tax, interest and penalties over 3 1/2 years. Eventually liquidators were appointed. The company and liquidators took action against the sole director/shareholder arguing he breached various duties as a director. The director did not defend the claim.
The High Court found the director was liable because:
- As sole director he knew the company was unable to pay its debts yet allowed it to keep trading.
- He failed to act in the best interests of the company by not ensuring it met its tax obligations as they fell due.
- He breached his obligation to avoid reckless trading by allowing the company to keep trading in the face of a growing tax bill.
- He failed to exercise the care, diligence and skill expected of a reasonable director under the Companies Act 1993.
The fact the director had sole responsibility for the management of the company and was its only director created a much clearer link between his failures as a director and the company’s indebtedness.
Full details of the case can be found at MJ Pidgeon Builder Ltd (in liq) v Pidgeon  NZHC 1566, 11 July 2016.
Clearly at the most serious end of the scale but nevertheless a good reminder to directors, particularly those with sole control over the company’s trading, that hiding behind the corporate veil should not be taken for granted when financial difficulties arise.