Actual Companies Act breaches widespread

Many company directors breach the Companies Act in their annual returns to the Companies Office, but prosecutions are rare, say lawyers and accountants.

The act requires all companies operating in this country to appoint an auditor unless there is a unanimous resolution from shareholders not to.

Minister David Parker has resigned all his Cabinet posts after it was disclosed that he had ticked a box on annual Company Office returns falsely stating that such a unanimous resolution had been made.

However, Deloitte partner Greg Anderson believed Parker's error was probably a widespread one.

"If the question is 'do I think many company directors would sign the form without going and getting the resolution from the shareholders?' I would suspect many would."

Most businesses were small to medium-sized, keen to avoid the added expense of employing auditors.

However, not all those seeking to avoid appointing an auditor would be rigorous in gaining a unanimous resolution from shareholders.

"How many small companies would actually document those resolutions in writing and have them signed sitting on file? I would suspect quite a few would not."

But Anderson did not believe that this was an area the Companies Office had the will or resources to enforce unless there was evidence of anything other than a desire to save a few hundred dollars in auditors' fees.

"The Companies Office focuses very much on certain compliance issues, I doubt that that is one of them that it would focus on greatly."

Ben Tothill, a partner at law firm Duncan Cotterill, said that while the Companies Office had an obligation to enforce the rule, "the first thing is they would want to determine is whether they felt it had been done with intent to falsify or render the record misleading".

Tothill also said the Companies Office was unlikely to prosecute, even if it had evidence a unanimous resolution had not been gained.

"What they're more concerned about is compliance with a overall statutory regime. They're more likely to pursue it if they wanted to make a public issue of it or make an example of someone or if they had an intransigent director who was deliberately doing things they felt he shouldn't."

The Companies Office was unavailable for comment yesterday but the Business Herald understands it brings one or two prosecutions a year for breaches of that part of the act.

Tothill said the Companies Office had recently become more active in requiring compliance with the act.

"But at the end of the day, if someone apologises and says 'I made a mistake' and gives a commitment not to do it again then the Companies Office are usually satisfied with that."