COML204 Final Exam Flashcards
What parts/sections relate to financial reporting, auditing, and disclosure?
Section 189 Company records
Part 11 Accounting records and financial reporting/Sections 194-207
Part 12 Disclosure by companies/Sections 208-226
What is the significance of Central Tyres Waipukarau Ltd v Pallesen?
Background
CTW put into liquidation with unpaid debts exceeding $300,000
Sole director of CTW put employee in charge of keeping financial records using Xero and MYOB without any training using the applications and was aware proper records were not being kept.
Held
Failure to comply with S 194
Sole director liable for all debts of the company and liquidation fees S 300
What is a large company and according to what standards must it prepare its financial statements?
s 201
Company with assets greater than $66m or revenue greater than $33m
NZ IFRS RDR
What is a large overseas company and according to what standards must it prepare its financial statements?
s 201
Overseas company with assets greater than $22m or revenue greter than $11m
NZ IFRS RDR
According to what standards must a company with greater than or equal to 10 shareholders prepare their financial statements?
s 201 unless opted out of according to s 207I by special resolution 95% shareholder majority
By default, GPFS
If opted out of, IRD SPFR
According to what standards must a company with less than 10 shareholders prepare their financial statements?
Can opt into s 201 according to s 207K if shareholder or shareholders who together hold 5% of voting shares require company to do so
By default, IRD SPFR
If opted into, GPFS
What companies must be audited?
Companies required to prepare financial statements under s 201
Large companies
Large overseas companies
Companies with greater than or equal to 10 shareholders, unless opted out of s 201 according to s 207I
Companies with less than 10 shareholders if opted into s 201 according to s 207K
What must an auditor do?
Audit must be carried out in accordance with auditing and assurance standards set by NZAuASB on authority delegated by XRB Board s 207A
Audit report must comply with requirements of all applicable auditing and assurance standards s 207B
Auditor’s report must be sent to Registrat and XRB if requirements have not been complied with (along with copy of financial statements)
Financial Reporting Act 2013 s 39
Auditor may require information and explanation from director or employee
s 377
False claims
Commits offence and liable on conviction to penalties set out in s 373(4) (imprisonment for a term not exceeding 5 years or to a fine not exceeding $200,000)
What qualifications must an auditor have?
CA ANZ or CPA certified
Registered on public Auditors Register
What are the auditors liabilities?
Contractual obligation to company (contract law)
Duty of care to company and current shareholders (tort law)
Professional standards (professional and ethical standards)
Caparo Industries PLC v Dickman
Background
Caparo Industries PLC owned shares in Fidelity
Dickman’s (auditor) audit was not up to standard
CIP invested in Fidelity
F’s profits were overstated
CIP sued D
Held
Not close enough proximity between D and CIP
D owed duty to F, not CIP
Purpose of financial statements was not investment
What are the requirements for tort of negligence/negligent misstatement?
Duty of care (proximity, other policy factors)
Breach of duty of care
Harm and causation
Remoteness of harm (reasonably foreseeable)
Reliance is not reasonable if statement was relied upon for a purpose other than the one it was made for or by someone the statement was not made for.
What sections relate to shareholder remedies?
Sections 165-174 and section 241(4)(d)
How should s 174 be approached?
“Oppressive, unfairly discriminatory, or unfairly predjudicial” should be looked at as a whole rather than individual parts
Note the use of “or”; can be any one of these
Shareholders have the right to apply to the court but the court will only provide remedy if it considers it just and equitable to do so
Re HR Harmer Ltd
Elderly founder ran company like a dictator/authoritarian manner
Held majority of shares
Ignored other directors and shareholders
Exercised powers that were not his to exercise
Held
Action of founding director amounted to oppression
Remedy
Court ordered founder to be employed as “senior stamp consultant” with salary of 2,500 euroes per annum
Founder not to interfere with running of company in anyway
Founder to be appointed as “president for life” but with no powers
Company to buy founders shares
Thomas v HW Thomas Ltd
Background
Closely held company
Plaintiff was grandwon who inherited shares but had no say in company
Plaintiff wanted higher dividends but was denied due to conservative financial policy of company
Requested higher dividends each meeting but was ignored by directors
Restriction on to whom shares could be sold to
Held
Decision to operate company conservatively and pay low dividends not oppressive because company was trying to expand and build capital to buy assets
Financial policy was board decision and no factors pointing to unfairness
No evidence plaintiff had tried to sell shares and was unreasonably prevented from doing so
Note
If there was malice to paying low dividends, company continued paying low dividends long after purchasing assets, or plaintiff had found someone to purchase his shares and was denied unreasonably then would amount to opression/unfairly discriminatory/unfairly predjudical
MPML v Mike Pero
Background
Mike Pero was “face of company” and sole director
Sherman Ma was passive shareholder who let Pero run company
Pero awarded himself pay increase
Held
Clear that as 50% shareholder in Ma had been unfairly prejudiced by Pero’s actions
Pero was paid a significant sum of money in excess of that to which he was entitled to
Szekely v Muse on Allen Ltd et al
Background
Szekely and North formed Muse on Alled Ltd
Szekely had 70% of shares in MAL
N had 30% of shares
Partnership formed including N’s parents
Business did poorly
Business leaked money (money was being spent unnecessarily)
Szekely and N fell out
Szekely abandoned and tried to sabotage business
N changed S’s shares to 49% and removed S as director
MAL was put into liquidation
Szekely sued N under s 174
Held
Unfairness did not lie in execution alone but in exclusion without reasonable offer (offer to buy shares at fair value)
At time of exclusion, shares had not value and therefore compensation could not be given
If shares had value,, compensation would have been just and equitable remedy
Case dismissed
s 175
Certain conduct deemed predjucial
Apply s 174 regardless
s 241(4)(d)
A court may order the liquidation of a company if it is just and equitable to do so
Vujnovich v Vujnovich
Background
3 brothers: Tony, Frank, and Steven
Formed company
Success attributable to T
F and S made significant investments
T sought to buy out F and S on ground of opression, or company to be liquidated
F and S sought to buy out T on grounds of opression (usurping corporate opportunity by redirecting opportunies to T’s companies)
Held
Both sides conducted company’s business oppressively
Considered just and equitable to order liquidation of company under s 241(4)(d) on basis of irretrievable breakdown
Ebrahimi v Westbourne Gallaries Ltd
Background
Ebrahimi and Nazar equal partners in partnership
Decided to incorporate partnership following success of business
N’s son brought in as shareholder
After falling out between Ebrahimi and N, N and son voted to remove E as director
E sought company to be liquidated
Held
Case of “lifting the corporate veil”
Company was still very similar to a partnership
Was regarded as a “quasi-partnership”
Under the rules of partnerships, exlcuding Ebrahimi from management of the business would be ground for ending the partnership
Therefore considered just and equitable to order liquidation of WBGL
What are the main takeaways of the Ebrahimi v Westbourn Gallaries Ltd case?
The core principles of a partnership can continue after incorporation
What should be considered when determining whether a quasi-partnership exists?
What are grounds for just and equitable liquidation under s 241(4)(d)?
No hope of profit
Deadlock
Persistent failure to comply with director’s duties
Loss of trust
Opressive conduct
Company formed for fraudulent purpose
In the case of a quasi-partnership, grounds for dissolving a partnership
What are rules of attribution?
Rules that tell us what act can and cannot be attributed to the company
Addresses the fact that a company is a separate legal entity that has capacity to carry on and undertake business or activities, do any act, and enter into any transacations, but does not exist otherwise
Enables company to be held liable in certain cirumstances
What are the three types of rules of attribution?
Primary
General
Special
What are primary rules of attribution and their sources?
Rules that apply to companies specifically
Companies Act 1993
Constitution
Common law relating to companies
What are general rules of attribution and their sources?
Rules that apply to all legal entities
Law of agency i.e., vicarous liability
What are special rules of attribution and their sources?
Rules that apply when a general rule does not e.g., if criminal intention must be shown
Statutes
What are the two ways in which a company can become legally bound?
Directly, if someone acts as the company, i.e., s 180, ordinary contracts, power usually given through board resolution
Indirectly, if someone acts for the company, i.e., agency
What is agency?
A relationship that arises when one person, the agent, acts on behalf of another person, the prinipal, and has the power to make contracts which affect the prinipal’s legal position with regard to a third party
The principal and agent have an agency relationship. The agent is bound by the agency contract and the principal is bound by the actions of the agent.
The agent forms a contract between the company and the third party on behalf of the company.
The company owes obligations to the third party.
What are the three ways in which a person can become and agent?
Express agreement (result of a contract, orally or in writing)
Estoppel (principal may not deny an agency exists when principal led third party to believe a person was their agent)
Implied (arises as result of status of person in business capacity, e.g., director of company)
What are the four types of authority?
Express (written or oral)
Implied (authority to do everything required or incedental to carrying out express authority)
Usual or customary (in respect of types of business, profession, or trade e.g., real estate)
Apparent (occurs when a person has no or limited authority e.g., when a third party is misled by actions of principal)
What is a tort?
A wrongful act or infringement of a right
The person who commits the wrongful act is legally liable to the party that suffers loss or injury as a result of the act
