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Recent case finds that lack of a resident director isn't immediately fatal

Written by Chris Lee, Jennifer Seo and Janou Kannangara on November 24th, 2017.

The absence of a resident director might result in a New Zealand company being struck off, but that won’t prevent it from enforcing its rights whilst still in existence.

A New Zealand company needs at least one resident director, i.e., one director who is either:

            a)   New Zealand resident; or

            b)   an Australian resident who is also a director of an Australian company.

Failing to satisfy the resident director requirement is a breach of the Companies Act 1993 and can result in a company being struck off or put into liquidation. However, as we discuss further below, New Zealand’s High Court has recently ruled that such a breach will not disqualify a company from the protection of the law or from being able to validly exercise its powers and rights whilst it does still exist.

Case review

YL NZ Investment Limited v Ling [28 NZTC 23-026] concerned the sale and purchase of real estate for $3.5 million inclusive of Goods and Services Tax. At the time the agreement was signed:
  • YL (the purchaser) was registered for GST;
  • Ling (the vendor) gave a warranty that she was not. Therefore, YL entered the agreement believing it could claim a GST input tax credit on the sale of $365,869.57; and
  • YL did not have a resident director.
The NZ Inland Revenue Department refused YL’s subsequent claim for the input tax credit on the basis that, although Ling was not registered for GST at the time, she should have been. Therefore, the sale of the property was zero-rated for GST, meaning GST was neither payable by Ling, nor claimable by YL.

YL sued Ling for breach of warranty. In her defence, Ling argued that YL’s failure to have a resident director at the relevant time meant it had no standing to bring this claim.

In awarding judgment to YL for the amount of the missing GST input tax credit, the Judge found that not having a resident director did not disqualify YL from the protection of the law, nor from being able to validly exercise its powers and rights.

Next steps

This case provides reassurance about a company’s ability to legitimately carry on business even without a resident director. However, it doesn’t change the fact that such a breach could lead to the company being struck off. If you need assistance appointing a resident director to a New Zealand company, or with any other New Zealand corporate legal advice, please get in touch.
Topics: Company Law
 
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