Company Z was incorporated in July 2008. The company was owned and operated by a sole Director/Shareholder who worked as a ‘handyman’. Following the Christchurch earthquakes, the company struggled to compete with other construction companies and work began to diminish. This caused the company to fall behind on payments it had owing and was eventually wound up by way of Shareholder resolution.
Prior to appointment of liquidators, the Director of the company, with some assistance from family, identified certain bills that needed to be paid as a matter of priority in order to obtain trade supplies to continue his business. A relative of the Director offered to pay one of these trade supply accounts and in exchange took possession of a company asset.
The liquidators successfully argued that in doing so, the Director’s relative received a preference over other creditors of the Company that allowed her to receive more than she would otherwise have received in the liquidation. This was on the basis that the book value of the trailer far outweighed the amount paid off the trade account.
Lesson for Directors
Seek the help of family and friends by all mean’s, if your business is struggling. But be aware that your actions, and their actions, may not be the best option in the long run, and if liquidators are appointed they will review each of these actions.
If any of the points raised above seem familiar to your current situation, contact us for a no obligation, private and confidential discussion. We would be happy to review your company’s current financial situation and provide practical advice.