By Tony Johnson - 25 Aug 2015
Think a company structure will avoid personal liability?
Think again. Directors of liquidated companies can be held
personally liable for GST.
The Companies Act gives the IRD long arms and very
big teeth. In a liquidation situation, there is potential personal
liability to directors if GST liability was incurred when the
company couldn't meet its obligations to the IRD.
The recent High Court decision in Brooklyn Rise Limited (In
Liquidation) again highlighted the risk to directors where GST
is not paid.
The company made no provision for payment of GST
liability arising out of five sales. The Court determined
that at the time the company's GST liabilities arose, a profitable
return on development of any of the sites was too far in the future
and too uncertain to be relied on as a realistic source of funding
to meet the GST liability.
As a result of the Court's factual finding, the
Court determined the director had breached his duty to not incur
obligations unless he believed at the time, on reasonable grounds,
that the company would be able to meet the obligation (pay the
GST).
The director was ordered to pay compensation of
$165,000 (representing part of the GST liability).
Contact Tony Johnson for more information on
directors' duties and company liquidations.