24.11.2017

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

HH Pg  Forrest uncropped
ETS Update: Climate Change Commission recommends minor tweaks to ETS Settings
Last month, He Pou a Rangi Climate Change Commission (the Commission) released its annual advice to the Government on the Emissions Trading Scheme (ETS) settings for the period 2026 to 2030 (Advice)....
HS Scrabble Med Crop Vignette
Health and safety learnings for landowners following latest Whakaari decision
The leasing and subleasing of land, buildings and infrastructure is commonplace in New Zealand business and commerce, but what happens when something goes wrong? Do landowners have health and safety o...
08.05.2025 Posted in Health & Safety
Navigating Settlor Intentions in Trust Restructures – Legler v Formannoij [2024] NZSC 173
In Legler v Formannoij the surviving widow Marina Formannoij, was forced to navigate the complexities of two trusts that were part of her late husband Ricco Legler’s estate plan: the Kaahu Trust (wh...
08.05.2025 Posted in Private Wealth
Counting Costs in Arbitration: High Court Affirms Arbitrator’s Discretion on Costs Awards
Construction contracts often require parties to finally resolve disputes through arbitration rather than Court litigation.  One important difference between arbitration and the Courts is that arbitra...
07.05.2025 Posted in Construction & Disputes
Mediation wide BW
Employment Law’s Dispute Resolution Process – Employment Relations Authority and Employment Court
In our last article, we introduced the dispute resolution process in the employment jurisdiction by discussing mediation – specifically, what mediation is and what to expect. This article discusses ...
17.04.2025 Posted in Employment
You’ve Been Served: Navigating the Use of Statutory Demands
An Introduction to Statutory Demands: A statutory demand is a legal document that is issued by a creditor (Creditor) to a debtor company (Debtor) demanding payment of a debt that is due and owing.  T...
15.04.2025 Posted in Insolvency and Restructuring
iStock  Succession Plan medium
Passing the Torch: Priming your Family Business for a Succession
As the first in a series of articles looking at the generational wealth transition and its impacts on business succession in New Zealand, Ben Hickson (partner, Corporate & Commercial) and John Kir...
07.04.2025 Posted in Corporate & Commercial & Private Wealth
SEND AN ENQUIRY
Send us an enquiry

For expert legal advice, please complete the form below or call us on (09) 375 8700.