sign up Your signup was successful Subscribing..


< back

Directors Beware: Liability for GST/Reckless Trading

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.


Forward to a friend

Leave a comment