Fear of tax sting in rescue plan

By KEVIN TAYLOR

The Australian company rehabilitation regime being adopted in New Zealand includes a provision which makes company directors liable for unpaid PAYE tax.

It is not yet known if the New Zealand system will include the liability provision but the prospect is worrying Business New Zealand and the Institute of Directors.

Commerce Minister Lianne Dalziel announced insolvency law changes this week, including a plan to adopt the Australian company rehabilitation regime.

She said that, at present, most insolvent companies in New Zealand go into liquidation, which means their assets are sold and jobs are lost.

"A rehabilitation regime will offer an opportunity for these companies to trade out of difficulties."

An official in Dalziel's office said no details had yet been decided on what parts of the Australian regime to adopt, but there would be further consultation.

Business NZ executive director Anne Knowles warned that the directors' liability provision, if adopted here, would undermine the concept of limited liability and discourage entrepreneurial activity.

She said the Employment Relations Bill originally contained a clause making directors personally liable for non-payment of wages and holiday pay.

"There was an absolute outcry over that. We can't see this situation being any different.

"The Australians say this provides an incentive for directors to come forward earlier, and increase the chances of successful rehabilitation."

But she said Business NZ thought such a move would be at odds with the clearly understood concept of limited liability for directors.

The Institute of Directors would also oppose any such move, said its research and policy director, Peter Webb.

"A statutory liability for a company's unpaid tax would raise the risk level too high for directors."

Some company failures had nothing to do with directors - it might be an economic downturn, interest rates rises, or bad luck.

"If directors are held liable ... smaller companies, in particular, won't be able to attract non-executive directors."

Webb said the economy would be hit as people decided against starting new ventures.

Dalziel also announced plans as part of the insolvency changes that directors of so-called phoenix companies would be criminally liable.

These are companies which, facing financial ruin, move their assets to another company - sometimes with almost the same name - leaving those owed money out of pocket.

"It is proposed to make criminal penalties available to the court where directors are shown to have acted in bad faith to defeat the legitimate interest of creditors," Dalziel said.

"There would also be a restriction on the re-use by a former director of a company name when that company is in insolvent liquidation."

She also announced that a legislative framework would be developed to simplify cross-border insolvencies.

Legislation would be introduced this year.