COML204: case law and sections

s 189 CA 1993

General Records. Must be kept for 7 years (M.A.C F.I.D.S: Minutes, Accounting, Constitution/Comms, Financials, Interest reg, Directors' certs, Share reg)[cite: 13].

s 194 CA 1993

Accounting Records. Must meet the C.A.R.S standard (Correctly record, Audit-ready, Reporting compliant, System of control)[cite: 13].

s 300 CA 1993

Director Personal Liability. Directors are personally liable for company debts if their failure to keep proper accounting records contributes to insolvency[cite: 13].

Maloc Construction v Chadwick (1986)

Keeping raw invoices and cheques in a drawer is insufficient; accounting records must be actively assembled (s 194)[cite: 13].

Central Tyres Waipukurau v Pallesen (2016)

Sole director held personally liable (s 300) for leaving untrained staff to manage software and only checking the bank balance[cite: 13].

Pacific Acceptance Corp v Forsyth (1970)

Auditors are not full-time detectives, but they must plan for the possibility of fraud and investigate suspicious transactions[cite: 13].

Esanda Finance v Peat Marwick (1997)

An auditor owes NO duty of care to a mere creditor who relies on the audited accounts to lend money[cite: 13].

Daniels v Anderson (1995)

Auditor found negligent for not reporting FX losses to the board, but the board was also held liable for contributory negligence[cite: 13].

Caparo v Dickman (1990)

Proximity test: Duty is owed to the company as a whole, NOT to individual investors making personal investment decisions[cite: 13].

s 169 CA 1993

Personal Action. Used for a direct breach to a shareholder. NEVER for a general drop in share value[cite: 13, 14].

s 165 CA 1993

Statutory Derivative Action. Court grants leave to sue in the name of the company for harm suffered by the company. Proceeds go to the company pot[cite: 14].

Foss v Harbottle (1843)

Proper Plaintiff Rule. Wrongs done to the company must be sued on by the company itself (s 165 was enacted to bypass this hurdle)[cite: 14].

Vrij v Boyle (1995)

The Prudent Business Person Test. Used to assess the "likelihood of success" for a derivative action (would a prudent person balancing cost/recovery proceed?)[cite: 14].

Thorrington v McCann (1998)

Derivative action leave granted because a director clearly usurped a corporate opportunity by secretly renewing a tavern lease for himself[cite: 14].

Presley v CallPlus (2008)

Derivative action leave granted (for diverting IP) showing that leave can be granted despite strong opposition from the company's board[cite: 14].

McKay v PHC Holdings (1998)

Derivative action leave refused because the company was an empty shell with no practical benefit to gain, and the issue was a purely personal dispute[cite: 14].

s 174 CA 1993

Prejudiced Shareholders. Conduct that is Oppressive, Unfairly Discriminatory, or Unfairly Prejudicial (O.U.D.U.P)[cite: 14]. Focuses purely on impact, not intent[cite: 14].

Re HR Harmer Ltd (1958)

Oppression by a dictatorial founder who ignored the board; he was stripped of power and his shares were bought out[cite: 14, 15].

Thomas v HW Thomas (1984)

Commercial reasonableness. Low dividends to buy valuable company assets was a valid board decision, so there was NO prejudice[cite: 15].

MPML v Mike Pero (2016)

Clear unfair prejudice found where a director secretly took a massive unauthorized pay increase without the 50% shareholder's consent[cite: 15].

Szekely v Muse on Allen (2017)

Prejudice found where a shareholder was diluted and removed from the business without a reasonable offer to buy his shares at fair value[cite: 15].

s 18 CA 1993

Indoor Management Rule. Outsiders can assume internal rules were followed UNLESS "put on inquiry" (the transaction brought high risk but zero benefit to the company)[cite: 15].

Northside Developments (1990)

Bank was "put on inquiry" because a director mortgaged company land for a personal loan (Co got zero benefit). Mortgage held invalid[cite: 15].

Story v Advance Bank (1993)

Bank NOT put on inquiry because the loan benefited a business actively operated through the company. Mortgage held valid[cite: 15].

Meridian Global (1995)

Criminal attribution. Rejects the "brain" test and uses statutory interpretation to attribute a specific employee's acts/knowledge directly to the company[cite: 15].

s 4 CA 1993

Solvency Test (T.B Test). Must pass both Trading Solvency and Balance Sheet Solvency before making distributions[cite: 15, 16].

s 18 Receiverships Act 1993

Receiver's Duty. Must act in the best interests of the secured creditor, but have "reasonable regard" for the company and unsecured creditors[cite: 16].

Schedule 7 CA 1993

Liquidation Distribution Order. Preferential claims = L.E.L.C.I (Liquidator fees, Employee wages, Layby sales, Creditor mtg costs, IRD tax)[cite: 16, 17].

s 292 CA 1993

Insolvent Transactions. Voidable if Co was insolvent and creditor got more than in liquidation (6mo restricted period, 2yr related party period)[cite: 17].

s 296(3) CA 1993

Good Faith Defence (G.V.A). A creditor can block a liquidator's clawback by proving Good faith, Value given, and Absence of suspicion[cite: 17].

s 297 CA 1993

Transactions Undervalue. 2-year clawback. The liquidator MUST prove the company was insolvent at the time of the transaction[cite: 17].

s 298 CA 1993

Related Person Transactions. 3-year clawback for mispriced deals with insiders. There is NO insolvency requirement at the time of the transaction[cite: 17].

Shephard v SBP (2013)

Continuing relationship test (s 292(4B)). Look at the net loss over the entire relationship, not peak debt. However, a final bizarre one-off payment was still voided[cite: 17].

Allied Concrete v Meltzer (2015)

Supreme Court held that "value" for the Good Faith Defence (G.V.A) can indeed be given in a once-off transaction[cite: 17].