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Companies Act 1993

Shareholders and their rights and obligations - Liability of shareholders

98: Liability of former shareholders

You could also call this:

“Former shareholders may still owe money to the company in certain situations”

If you used to own shares in a company but sold them, you might still have to pay money to the company in some cases. This can happen if the current shareholders can’t pay what they owe on their shares or if there’s something in the company’s rules that says you have to pay.

You won’t have to pay for any debts the company got into after you sold your shares.

These rules also apply to companies that changed how they were registered under the Companies Reregistration Act 1993. If you were a member of one of these companies before it changed, you’re treated like a former shareholder.

If you stopped being a shareholder when the company changed from having limited liability to unlimited liability, you only have to pay what you would have if the company had stayed limited.

The time period that matters for this rule is usually one year before the company started to close down, plus the time until someone is put in charge of closing it down. If a court was asked to close the company, the time period starts one year before that request was made.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320465.

Topics:
Business > Industry rules
Business > Fair trading
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97: Liability of shareholders, or

“Shareholders' financial responsibilities to the company are limited”

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99: Additional provisions relating to liability of shareholders and former shareholders, or

“Rules about owing money to a company for current and former shareholders”

Part 7 Shareholders and their rights and obligations
Liability of shareholders

98Liability of former shareholders

  1. A former shareholder who ceased to be a shareholder during the specified period is liable to the company in respect of any amount unpaid on the shares held by that former shareholder or any liability provided for in the constitution of the company for which that former shareholder was liable to the company if the court is satisfied that the shareholders of the company are unable to discharge any liability—

  2. for any amount unpaid on shares held by them; or
    1. expressly provided for in the constitution of the company.

      1. A former shareholder is not liable under subsection (1) for any debt or liability of the company contracted after ceasing to be a shareholder.

      2. Subsections (1) and (2) apply, with such modifications as may be necessary, in relation to an existing company that has become reregistered under this Act in accordance with the Companies Reregistration Act 1993 and as if the reference to a former shareholder included a reference to a person who was a member of the company before the reregistration of the company.

      3. Where a person ceased to be a shareholder of a company before the liability of the shareholders of the company ceased to be limited and became unlimited and that person has not since become a shareholder of the company, that person is liable to the company only to the same extent as if the liability of the shareholders had remained limited.

      4. Subsection (4) applies, with such modifications as may be necessary, in relation to an existing company that has become reregistered under this Act in accordance with the Companies Reregistration Act 1993, whether or not the liability of the shareholders ceased to be limited before, on, or after the reregistration of the company and as if the reference to a person who was a shareholder included a reference to a person who was a member of the company before reregistration.

      5. For the purposes of subsection (1), specified period means—

      6. a period of 1 year before the date of commencement of the liquidation of the company together with the period commencing on that date and ending at the time at which the liquidator is appointed; and
        1. in the case of a company that has been put into liquidation by the court, the period of 1 year before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date on which, and at the time at which, the order was made; and
          1. if—the period of 1 year before the making of the application to the court together with the period commencing on the date of the making of that application and ending on the date and at the time of the commencement of the liquidation.
            1. an application was made to the court to put a company into liquidation; and
              1. after the making of the application to the court a liquidator was appointed under paragraph (a) or paragraph (b) of section 241(2),—

              Notes
              • Section 98(6)(a): replaced, on , by section 2(1) of the Companies Amendment Act 1999 (1999 No 19).
              • Section 98(6)(b): amended, on , by section 2(2)(a) of the Companies Amendment Act 1999 (1999 No 19).
              • Section 98(6)(b): amended, on , by section 3 of the Companies Amendment Act 1998 (1998 No 31).
              • Section 98(6)(c): inserted, on , by section 3 of the Companies Amendment Act 1998 (1998 No 31).
              • Section 98(6)(c): amended, on , by section 2(2)(b) of the Companies Amendment Act 1999 (1999 No 19).