New Zealand Credit Law Bulletin - Vol 2, No 8, Christmas 2002
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: nz-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Some initial results from the Hattaways/MG Business Credit Management Remuneration Survey 2002
We've had 235 responses, 103 of them from New Zealand credit staff, the rest from Australia. - Bankrupt didn't appreciate the risks of 100 percent financing and borrowing
An application for early discharge from bankruptcy. - Company that signed the lease no longer exisited - was the director personally liable?
MATVS Ltd was replaced by MATV 1993 Ltd but no-one told the landlord - New service - contract credit managers
When you need a credit manager for 3 or 6 months to sort out a problem, we know the people to call. - Privacy Commissioner's advice on treatment for paranoia
If you thought the Privacy Act was sane, think again.
1. Some initial results from the Hattaways/MG Business Credit Management Remuneration Survey 2002
If you work in credit go to http://www.hattaways.com/surveys/pay2002.php and fill in the survey. 235 people have already done so.
Some broad initial conclusions. The average annual rate for front line staff in New Zealand is NZ$30,760 while in Australia it's A$37,820. The salaries for people calling themselves credit controllers are NZ$41,165 and A$52,343 respectively, and for national credit managers NZ$60,024 and A$64,444 respectively. Bigger sample sizes will give us better data, so fill in the survey now! Final numbers will be reported in detail in the new year to anyone who requests them.
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2. Bankrupt didn't appreciate the risks of 100 percent financing and borrowing
In the matter of applications by Stewart (Unreported, Dunedin; B63/99, B64/99) 22 November 2001
Mr and Mrs Stewart were declared bankrupt in September 1999 on a creditors petition by the Goodwins. They were due to be discharged from bankruptcy on September 2002, but applied to be discharged early. The Court has a discretion to grant such applications. "In providing for earlier discharge, s.108 [Insolvency Act 1967] recognises that continuing the bankruptcy to the end of the three years may not be in the public interest."
Southern Brokers Limited was the vehicle that the Stewarts had used to conduct both their investment and insurance brokerage business. The Stewarts maintained that the cause of their bankruptcy was a lack of personal assets caused by the fraudulent misappropriation of money by Mr Goodwin, who now opposed early discharge.
Both the Goodwins and the Stewarts were shareholders in Eurocorp Investments Co Ltd. The Stewarts accused the Goodwins of dishonestly taking US$100,000 due to Mr Stewart as a shareholder. Neither the police or the Official Assignee took any steps to investigate the matter. It was therefore not material to bankruptcy proceedings in the first place.
The bankruptcy proceedings arose from a speculative investment of a block of flats undertaken in partnership with the Goodwins. The Stewarts borrowed 100 percent finance under a trust to limit liability. However, the loan agreement didn't limit liability to the assets of the trust. There the Goodwins were second mortgagees to the Stewarts, who defaulted on this loan. The Goodwins brought the bankruptcy petition.
The Court decided that the Stewarts needed to "show good cause". In their favour there were few creditors other than the Goodwins interested in the application. The Official Assignee also reported that the Stewarts had done what had been required of them during their bankruptcy.
But Mr Stewart remained a director of Southern Brokers Limited. An undischarged bankrupt does not qualify to be a director, so he was breaching s.151 of the Companies Act 1993. Mr Stewart maintained that this was not a problem as the business was not trading. However the Court disagreed as the company was still listed in the Yellow Pages. Mr Stewart also failed to declare income earned of $2000 per annum from renewable commissions.
The single most important factor was that Mr Stewart had been bankrupt before and did not have a good commercial record. Mr Stewart was asked if he would go out and do the same thing again. He said, "If the particular transaction was as attractive as that one then yes I would." The master was concerned about this and concluded that he was not satisfied that it would be in the public interest to discharge the Stewarts from bankruptcy early. In his decision, the master said, "It appears ... that Mr Stewart may not appreciate the risks of 100 percent financing and borrowing on investment property."
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3. Company that signed the lease no longer exisited - was the director personally liable?
Clarence Holdings Ltd v Hall, Court of Appeal, CA176/00 14 May 2001 McGrath J
Hall and Bagnall purchased Mt Albert TV Services Limited which had an existing lease with Clarence Holdings Ltd. In 1992 Clarence Holdings produced a new lease agreement which Hall and Bagnall signed on behalf of this company.
In 1993 Hall and Bagnall formed Mt Albert TV 1993 Limited which acquired the old company's assets and undertakings. The old company stopped trading at this point and the next year it was removed from the companies register. Clarence Holdings was not notified of the formation of the new company but cheques and other payments to the landlord from this point were in the new company's name.
In 1994 Clarence Holdings gave notice of plans for redevelopment. The old company was asked to vacate the premises. Hall and Bagnall signed and acknowledged the request in the old company name. After some negotiations with Hall and Bagnall, Clarance Holdings' solicitors wrote to the old company to confirm changes to the lease. Hall signed his agreement to these changes. (He later argued that the signature wasn't his but the judge found that it was.) The business (ie. the new company) subsequently moved into the new premises following development.
Clarence Holdings then sent the old company a new lease agreement. The old company was clearly committed (under its 1992 lease and subsequent letters signed in its name) to signing this. However, for the next two years it was not signed and the lawyers of the two parties exchanged letters. Finally, Hall and Bagnall sent a letter in the new company name stating that the 1992 lease was between Clarence Holdings and the old company, and therefore the new company was not bound by any lease agrement. In 1997 the new company vacated the premises and ceased to pay rent.
The Court held that despite its name not appearing on the lease the new company in acquiring the old company's assets was fully liable for all of the obligations under the 1992 lease. This however was of little value to Clarence Holdings as the new company was now wound up.
Clarence Holdings argued that Hall was personally liable for the obligations under the lease because he had misstated which company was the lessee. Section 116 of the Companies Act 1993 provides that directors can be held personally liable for obligations entered into on behalf of a company where they have mistated the company name.
The Court declined to make Hall personally liable for the obligations under the lease. Although the Court can make a director personally liable for mistating the company's name under Section 116, it may excuse the director where it would be not be just and equitable to hold the director liable. The Court found that Clarence Holdings would have suffered the same loss had the old company remained as lessee. The new company was in a similar financial position and the formation of the new company was not a contributing factor to Clarence Holdings loss.
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4. New service - contract credit managers
http://www.hattaways.com/contractcm.php
We've recently had clients approaching us with problems which we couldn't attempt to solve with training or a report. Instead, what they have needed was a practical, experienced, hands-on, senior credit manager on a contract basis. They needed someone experienced to go in for perhaps three months or six months to sort out their ledger/centralise their credit operations/manage the introduction of their new systems. It so happens that we know people like that in many cities in Australasia - people who have worked their way out of their previous jobs and are looking for new challenges.
We'll only offer a few people whose skills we have great confidence in. And we're also there to give them support over the length of their assignment. Our new web page currently has details of senior people available in Sydney, Wellington, and Christchurch, but if you need someone in another city, call us. We can probably help.
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5. Privacy Commissioner's advice on treatment for paranoia
The New Zealand Privacy Commissioner's newsletter, Private Word, issue 45, reports that a doctor "was concerned that his patient was becoming increasingly paranoid and might be developing a significant psychiatric disorder. So when she asked to see the case notes he had made on her, he withheld some of the information." Under the Privacy Act, he was entitled to do so if he considered that it was likely to prejudice her health, which it appears he did. Unfortunately it wasn't as simple as that.
According to the Privacy Commissioner, he should have first informed the woman that he had some health information about her but that he wanted to withhold it. So the doctor should have told this paranoid woman that he had some information about her that he was not going to let her have. Riiiight. It's the privacy version of catch-22. You don't have to give her the information because it would tend to make her paranoid, but you have to tell her that you're not going to give her the information... which will tend to make her paranoid.
Of course, if you work in credit management, you probably already know the Privacy Act is insane.
