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
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

Clarity on Liquidated Damages following Termination
The United Kingdom Supreme Court in Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 29 has clarified the operation of liquidated damages clauses in the event of termination.  The dec...
Is your will in draft form?  High Court refuses to exercise its discretionary power to validate a draft will notwithstanding beneficiaries’ consent
The High Court’s recent decision in Re: An application to validate the will of Olive Ruby Piper [2021] NZHC 534 serves as a valuable reminder to make sure that your estate planning documents are...
16.09.2021 Posted in Family & Trust Wills Estates
New Fair Trading Act provisions spark need to review small trade contracts
The Fair Trading Amendment Bill received Royal Assent on 16 August 2021 and is now the Fair Trading Amendment Act 2021 (Amendment Act).  The Amendment Act amends the Fair Trading Act 1986 (FTA), with...
Employment Relations Authority Finds Dismissal of Unvaccinated Border Worker to be Justified
On 1 September 2021, The Employment Relations Authority (Authority) determined in GF v New Zealand Customs Service [2021] NZERA 382, that the New Zealand Customs Service (Customs) was justified in its...
10.09.2021 Posted in Business Advice & COVID-19 & Employment
AML/CFT guidance with the High Court’s decision in Reserve Bank of New Zealand and TSB Bank Limited
On 31 August 2021, the High Court of Wellington released its decision on the Reserve Bank of New Zealand v TSB Bank Limited.
09.09.2021 Posted in AML/CFT & Banking and Finance
Supreme Court asserts Employment Relations Authority exclusive jurisdiction
The Supreme Court has recently issued a significant judgment clarifying that the Employment Relations Authority (Authority) has exclusive jurisdiction over claims arising in a “work context”. In d...
09.09.2021 Posted in Business Advice & Employment
How much does one truly deserve?
A critical analysis of the New Zealand and Australian High Courts' approach to quantum meruit claims within the construction industry
06.09.2021 Posted in Construction & Regulatory
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.
-->