Safeguard yourself against reckless trading with the help of your accountants

Have you considered asking your accountants for help if you are a director of a New Zealand business that is in trouble?

Does the thought of your personal liability in the event of reckless trading bother you?

No New Zealand business is immune to the global economic downturn and this may be a good opportunity for you to review your responsibilities with the guidance of your accountants.

Your accountants will also be able to suggest steps that you should take to prove that you have fulfilled your obligations.

In New Zealand, as in many other countries, the affairs of a company are managed by a board of directors even though they may delegate the day-to-day management to professional managers. Their primary duty is to safeguard the interests of shareholders who have elected them to the board.

Other than this, they also have duties towards other parties who deal with the company including creditors. Under NZ law, a director may not be party to a company trading in such a fashion as to cause serious losses to creditors. This is commonly described as the obligation to avoid reckless trading.

Rely on the judgment of your chartered accountants

Unfortunately, there is little guidance from the New Zealand courts as to what constitutes reckless trading as cases have mostly been decided on individual details. This is why you should rely on professional judgment. The most common signs of business trouble are strained liquidity or a balance sheet that is inching towards insolvency.

Your chartered accountants will spot the warning signals and recommend the necessary measures that prove that you have carried out your responsibilities as a director. You should bear in mind that business failure is nothing to be ashamed of and is certainly not a crime. Companies with strong financials can afford to take risks and the consequences of a prolonged downturn.

Steps to protect your interests

You must not only exercise the necessary due diligence but be seen to be doing so. Some of the steps that you should take:

1. Ensure that board meetings are held regularly with proper agendas and minutes. All the relevant documents should be tabled at these meetings.

2. Review your business plans, budgets and forecasts

3. Monitor the actual performance of your company against budgets and the forecasts. You should also ensure that the requisite corrective action is being taken where performance is not up to expectations.

Being a director of a troubled company is never going to be easy but New Zealand law imposes the additional responsibility of avoiding reckless trading. If you feel that you may be approaching this situation, get expert help immediately.  Call in a top-notch firm of accountants.