NEWS

Davenports News May 2015

Reckless Trading

 

Dave was the sole director of Dave’s Event Hire Ltd. The company had been struggling recently and had racked up significant debts. Dave thought that the company could probably pay these off one day and was working on a couple of deals which he thought were likely to earn the company big money. The parties on the other side of both deals were non-committal but Dave was sure they were just keeping their cards close to their chest. 

After several months of the company’s debts creeping up, creditors started to demand repayment and Dave’s Event Hire was struggling to meet their demands. Dave realised that things were starting to get tight.  In fact, the company was on the brink of insolvency. However, Dave was pretty sure that the deals in the pipeline were going to come through soon and, as a guarantor to the company’s debts, he had a substantial interest in the company continuing to trade and to recover. With this in mind, Dave put off repayments and assured his creditors that everything would be fine.

At the same time, Dave was concerned because his competitors had a wide range of exciting new hire products from the USA, Europe and Asia and he was sure that if he stocked a better range he would be more competitive. Dave decided that, although the business was struggling, interest rates were low so it would be a good time for him to borrow and make a large order for new hire products from overseas. He could then finally stock everything he needed to compete and the business would take off again. Dave went ahead and placed a significant order for new stock.

The new stock arrived and Dave continued to trade for several months but his big deals never come through. The company had now been insolvent for four months and creditors were closing in.

One of his creditors got wind of Dave’s significant order and accused him of reckless trading. The creditor told Dave to settle his debts immediately or he would be calling in the liquidators and taking Dave to court for a breach of his duties as a director – he also told Dave that he would be personally liable for the company’s debts.  Dave spoke to his lawyer and realised that he was in hot water.

If you have any queries about the above or would like more information, please contact Victoria Palfrey at victoria.palfrey@davenportsharbour.co.nz or
(09) 915-6145.
Copyright 2015 Davenports Harbour Lawyers, All rights reserved.

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