In our previous article, Internal Fraud – The Threat from Within (April 2017), we gave a broad outline of the basic steps that can be taken to help reduce the chances of internal fraud and increase the chances of fraud being identified if it is happening. This article sets out in a bit more detail some of the policies and procedures you should consider implementing in your business, if they are not already in place. The size of your business, and the number of employees involved, will have a bearing on what can be done. EMPLOYING STAFF: The employees of a company can be its greatest asset or its greatest liability. Employing the wrong person can have a devastating effect…

As a landlord of commercial property it is important for you to understand your rights and responsibilities to ensure you don’t inadvertently breach legislation and obligations. If you do, you may face significant liability. A Deed of Lease details the relationship and terms/conditions between a commercial landlord and tenant. The Property Law Act 2007 (“PLA”) defines rights and obligations of landlords and tenants. The Unit Titles Act 2010 can also apply if the property is a unit title. A commercial landlord has obligations to comply with the Building Act 2004 and Building Code and to complete a building warrant of fitness for Council. A commercial landlord also has obligations to maintain the building, comply with health and safety standards. A…

What is a General Security Agreement? A General Security Agreement (GSA) is a document recording a security provided by a debtor company to its creditor over a specific group of assets or over all assets of the business. The GSA records the terms which include a right of the creditor to register their interest on the Personal Property Securities Register (PPSR) so that there is a public record of that financial interest in the assets of the debtor company. We always recommend to directors/shareholders investing moneys into their business on start-up that they attend to completing the appropriate loan documentation (between company and individual) and a General Security Agreement recording the terms. It is important that this GSA is registered on…

As the creditor of a company that is failing to make payment of amounts owed, the process you have to follow, to have liquidators appointed in relation to that debtor company, can be slow and frustrating. It will be even more frustrating, and worrying, if you have concerns about what will happen with the assets of the debtor company while the process takes place? There is an option, pursuant to Sections 241(4)(d) and 246 of the Companies Act 1993 (“the Act”) to have an interim liquidator appointed by the Court to take control of and preserve those at-risk assets. NORMAL PROCESS In the normal course of events, when liquidating a debtor company, the process starts with the serving of a…

With Auckland’s housing shortage and home renovation activity, you would be excused for thinking building companies should be surfing a building boom and reaping the rewards.However, many continue to fall over despite promising industry conditions, leaving customers, contractors, suppliers and even the taxman in the red. Building is a complex task Building involves multiple parties from designers and architects to surveyors and councils, to suppliers and to customers. There are few companies that have the ability to perform the entire build process. There are external specialist suppliers. Whether it’s the architect or the excavator and/or foundation company or the window supplier or the plumbers/sparkies and tilers and painters these trades (and many more) are usually separate from the builder. There…

Effective cashflow management is critical to any businesses survival and growth. Understanding your businesses underlying cashflows will help identify potential changes to your business processes that will improve cashflow, profitability and business value A firm's ability to reliably spin-off positive cashflows from the firm's routine business operations is one of the key factors business owners and potential investors look for. Cashflow Defined Cashflow is typically defined as the net change in your firm’s cash position from one accounting period to the next. If you generate more cash than you consume, you have a positive cashflow. If you have greater cash outflows than inflow, you have a negative cashflow. Thus, your cashflow is a key indicator of a firm’s financial health.…

How is a Receiver Appointed A Receiver is appointed under a general security agreement (GSA) or a deed, or by the High Court. A Court appointed Receivership is less common. Receivers are most commonly appointed over all present and after acquired personal property and undertakings of the company but can also (subject to the security agreement) be appointed over specific assets. A Receiver is most often appointed for financial reasons however Receivers can also be appointed as a result of shareholder dysfunction risking the welfare of the business or perhaps for the reason of fraud. A Receivership is a mechanism for secured creditors to recover moneys due to them when the debtor fails to pay. There must be a default…

There are a number of reasons for poor business cashflow. We have highlighted the top seven as follows: One: Accounts receivable process A poor accounts receivable process will result in debtor days (the time between billing and banking) being too high. This will stifle your cashflow. There are many strategies to minimise debtor days including tightening your Terms of Trade, offering prompt payment discounts and streamlining your billing process. Two: Accounts payable process A review of all suppliers’ terms may identify ways to improve cashflow and potentially achieve better Terms of Trade. Implementing budgets, streamlining your payments process to maximise prompt payment discounts and avoid late payment penalties is just the start. Three: Inventory process Carrying stock for too long means full shelves but…

We have recently been involved in a liquidation where we considered the directors breaches of duties and ultimate loss to creditors so extreme as to be worthy of taking an action in the High Court. The action was funded by the largest creditor. We alleged the directors (a former banned director, an undischarged bankrupt based in Hong Kong, and a lawyer) traded recklessly (s135), incurred obligations without reasonable belief they would be able to perform the obligations (s136) and failed to exercise care, diligence and skill that reasonable director would have exercised in the same circumstances (s137). We sought recovery from the directors. The case involved customer losses from the companies first order, when the customer had paid a large…

We are often asked ‘how do liquidators’ work’ and what are their rights regarding access to company records and information. To clarify we have put together this article. When a liquidator is appointed over a company, either by the shareholders or by order of the High Court, one of the first steps taken will be to locate and uplift the books and records of the company and to seek information about the business, accounts or affairs of the company to enable a full review to be undertaken. The purpose of the review is to – Establish the financial position of the company at liquidation; Ensure that all assets have been properly accounted for; Identify any other avenues of recovery for…

Have greater flexibility and pay your income tax how and when it suits you Tax Management NZ (TMNZ) provides an IRD-approved service that gives businesses greater flexibility to do tax on their terms by letting them choose how and when they make their income tax payments. Upcoming provisional tax paymentsTMNZ has several payment options to help you manage upcoming income tax payments. This provides greater flexibility, wipes any late payment penalties, and reduces interest costs. The burden provisional tax payments can have on your cashflow can be eased by paying off what you owe in flexible instalments, where you pay what you can, when you can. If paying an upcoming provisional tax payment in instalments does not suit, you can…

It is common in New Zealand for the directors and shareholders of small companies to be the same people and many are also employees of the company – executive directors.  Whether this is in the form of a family owned business or a just a small to medium sized enterprise made up of unrelated individuals this involvement on all levels can create difficulties. The advantage of such a set up is that the individuals are motivated to make the business work and be profitable. The downside is that the closed nature of the board can leave gaps in the knowledge and experience held by the directors and their closeness to the business can lead to subjective decision making. Depending on…