News
Court of Appeal upholds $8.4 million ruling on reckless trading by company director
The Court of Appeal has upheld a High Court order that a company director should pay over NZ$8.4 million to the company's liquidators, upholding the largest award ever made against a director for reckless trading.
In February 2004, the High Court found that former South Pacific Shipping Limited director Klaus Löwer had conducted the now collapsed company's business in a reckless manner. The court has ordered him to pay NZ$8.4 million, plus interest of over NZ$3.7 million and costs of NZ$300,000.
"The judgment makes it clear that the New Zealand courts are willing to make very substantial awards against errant directors in appropriate cases," says Bell Gully partner Mark O'Brien, who acted for the SPS liquidators from PricewaterhouseCoopers.
"The vast majority of directors who follow sensible governance practice needn't be concerned about this decision. The court has sensibly protected legitimate risk taking in business but made it clear it will not tolerate reckless conduct by any director," says Mark.
PricewaterhouseCoopers partner and company liquidator John Fisk said the court had drawn a distinction between legitimate and illegitimate risk taking.
"Trading while insolvent without a reasonable prospect of recovery, and without proper governance practices, is not legitimate. This is what characterised Mr Löwer's directorship of SPS over a prolonged period," says John.
Notes for editors
South Pacific Shipping Limited
Christchurch-based South Pacific Shipping Limited had operated a trans-Tasman shipping business in the 1990s. It had entered into a competitive market with inadequate capital and had generated liquidity by rapid expansion and favourable trading terms. Mr Löwer was also lending the company his own money but despite this the company was balance-sheet insolvent throughout its six-year life.
Bell Gully
Bell Gully (www.bellgully.com) is New Zealand's leading commercial law firm and was founded in 1840. The firm has one of the country's strongest legal teams with more than 230 partners and lawyers with experience and expertise across a wide range of business and government sectors.
PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) is the world's largest professional services organisation. Drawing on the knowledge and skills of more than 125,000 people in 142 countries, we build relationships by providing services based on quality and integrity. ("PricewaterhouseCoopers" refers to the network of member firms and PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.)
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