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Companies Act 1993

Liquidations - Recovery in other cases

300: Liability if proper accounting records not kept

You could also call this:

“Directors may be personally liable for company debts if proper records aren't kept”

If a company is being liquidated and can’t pay its debts, the court might hold its directors personally responsible for those debts. This can happen if the company didn’t keep proper accounting records or prepare financial statements as required by section 194, section 201, or section 202.

The court can do this if they think the failure to keep proper records contributed to the company’s inability to pay its debts, caused confusion about the company’s assets and liabilities, or made the liquidation process more difficult. The court can also do this for any other reason they think is proper.

However, the court won’t hold a director responsible if they took all reasonable steps to make sure the company followed the rules, or if they genuinely believed that someone competent and reliable was in charge of following the rules.

The court can give any directions they think are needed to carry out their decision. They can also hold a director responsible even if that person might be convicted of a crime related to the same issue.

An order made by the court under this section is considered a final judgment under section 17(1)(a) of the Insolvency Act 2006.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM322322.

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Part 16 Liquidations
Recovery in other cases

300Liability if proper accounting records not kept

  1. Subject to subsection (2), if—

  2. a company that is in liquidation and is unable to pay all its debts has failed to comply with—
    1. section 194 (which relates to the keeping of accounting records); or
      1. section 201 or 202 (which relates to the preparation of financial statements or group financial statements) or any other enactment that requires the company to prepare financial statements or group financial statements; and
      2. the court considers that—
        1. the failure to comply has contributed to the company's inability to pay all its debts, or has resulted in substantial uncertainty as to the assets and liabilities of the company, or has substantially impeded the orderly liquidation; or
          1. for any other reason it is proper to make a declaration under this section,—
            2. the court, on the application of the liquidator, may, if it thinks it proper to do so, declare that any 1 or more of the directors and former directors of the company is, or are, personally responsible, without limitation of liability, for all or any part of the debts and other liabilities of the company as the court may direct.

          2. The court must not make a declaration under subsection (1) in relation to a person if the court considers that the person—

          3. took all reasonable steps to secure compliance by the company with the applicable provision referred to in paragraph (a) of that subsection; or
            1. had reasonable grounds to believe and did believe that a competent and reliable person was charged with the duty of seeing that that provision was complied with and was in a position to discharge that duty.

              1. The court may give any direction it thinks fit for the purpose of giving effect to the declaration.

              2. The court may make a declaration under this section even though the person concerned is liable to be convicted of an offence.

              3. An order under this section is deemed to be a final judgment within the meaning of section 17(1)(a) of the Insolvency Act 2006.

              Compare
              • 1955 No 63 s 319
              • 1980 No 43 s 31
              Notes
              • Section 300(1)(a): replaced, on , by section 37 of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
              • Section 300(5): amended, on , by section 445 of the Insolvency Act 2006 (2006 No 55).