Plain language law

New Zealand law explained for everyone

Companies Act 1993

Offences and penalties

386C: Liability for debts of phoenix company

You could also call this:

“Personal responsibility for debts when running a phoenix company”

If you break the rules about running a phoenix company, you can be held personally responsible for the company’s debts. A phoenix company is a new business that’s very similar to a failed company.

If you’re involved in managing a phoenix company and you follow instructions from someone who you know is breaking the rules, you can also be held personally responsible for the company’s debts.

The debts you might have to pay are those that the phoenix company built up while it was using a name similar to the failed company. This applies during the time you were involved in managing the company or following instructions from someone breaking the rules.

If you’re found responsible, you might have to pay these debts along with other people who are also responsible. You don’t have to pay them all by yourself.

If you’ve ever followed instructions from someone you knew was breaking the rules, people will assume you’re willing to do it again. You’ll need to prove that you’re not willing to follow their instructions anymore.

For more information about the rules for phoenix companies, you can check section 386A.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM323265.

Topics:
Business > Industry rules
Business > Fair trading
Crime and justice > Criminal law
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386B: Definitions for purpose of phoenix company provisions, or

“Explaining terms used for companies that restart after failing”

Next

386D: Exception for person named in successor company notice, or

“You're not liable if named in a notice about a company taking over a failed business”

Part 21 Offences and penalties

386CLiability for debts of phoenix company

  1. A person who contravenes section 386A(1)(a) or (b) is personally liable for all of the relevant debts of the phoenix company.

  2. A person (A) who is involved in the management of a phoenix company is personally liable for all of the relevant debts of the company if—

  3. in the management of the company A acts or is willing to act on instructions given by another person (B); and
    1. at that time A knows that B is contravening section 386A(1)(a) or (b) in relation to the company.

      1. In this section, relevant debts—

      2. in subsection (1), means the debts and liabilities incurred by the phoenix company during the period when the person liable was involved in the management of the company and the phoenix company was known by a pre-liquidation name of the failed company or a similar name:
        1. in subsection (2), means the debts and liabilities incurred by the phoenix company during the period when A was acting or was willing to act on the instructions of B and the phoenix company was known by a pre-liquidation name of the failed company or a similar name.

          1. Liability under this section is joint and several.

          2. For the purposes of this section, a person who, as a person involved in the management of a company, has at any time acted on instructions given by a person who he or she knew at the time to be in contravention of section 386A is presumed, unless the contrary is shown, to have been willing at any later time to act on any instructions given by that person.

          Compare
          • Insolvency Act 1986 s 217 (UK)
          Notes
          • Section 386C: inserted, on , by section 35 of the Companies Amendment Act 2006 (2006 No 56).