9.05.2018

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

A New Zealand company needs at least one resident director

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, 09 375 8700.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry_100x100 1
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Updated Subcontract Agreement: SA-2017
The SA-2009 form of Subcontract Agreement is commonly used in the construction industry. It has undergone a review and a new SA-2017 form has been produced.
3.07.2018 Posted in Construction Law & Health & Safety Law
Distribution Agreements – 6 Key Considerations
While the exact nature and terms of a distribution agreement will vary between industries and jurisdictions, these 6 issues will always be important.
28.06.2018 Posted in Corporate & Commercial law
Continued Importance of IP Protection for Manufacturers
The Ministry of Business, Innovation and Employment (MBIE) has recently released a report which identified key trends and challenges for the manufacturing sector (that report can be accessed here). Th...
28.06.2018 Posted in Corporate & Commercial law
CONSTRUCTION LAW UPDATE – JUNE 2018
Recent Construction Law Decisions and Developments in New Zealand
18.06.2018 Posted in Construction Law
Updated Standard Consultancy Agreements
Two of the most commonly used standard agreements to engage consultants are the ACENZ / Engineering New Zealand (formerly IPENZ) Short Form Agreement (“SFA”) and the Conditions of Contract for Consultancy Services (“CCCS”).
5.06.2018 Posted in Construction Law
Managing Employees’ Mental Health Issues
Ministry of Health statistics confirm that during 2016, 169,454 people accessed mental health services in New Zealand. The law of averages suggests that most workplaces will – to a lesser or greater degree – be affected at some time by an employee’s mental health issue.
31.05.2018 Posted in Employment Law & Health & Safety Law
Managing Medical Incapacity: Enough To Make You Feel Sick?
Managers and HR practitioners often tell us that dealing with employees who are genuinely too sick or injured to work is one of their least favourite tasks. Frankly, we can see why.
31.05.2018 Posted in Employment Law
Send us an enquiry
For expert legal advice, please complete the form below or call us on (09) 375 8700.
  • This field is for validation purposes and should be left unchanged.