The Registrar of Companies has the power to issue a prohibition order against a company director. The Companies Office administers prohibition following mismanagement, and prohibition following conviction.
What prohibition means
If a prohibition order is issued against you, you can't:
- act as a director or promoter of a company
- take part, directly or indirectly, in the management of a company.
The length of your ban depends on which section of the Companies Act 1993 you're prohibited under.
Prohibition following mismanagement
The decision to issue a prohibition order against an individual for mismanagement rests with the Registrar of Companies. The Registrar considers several factors when making their decision including, but not limited to:
- the protection of the public
- setting of standards
Prohibition following mismanagement is dealt with under Section 385 of the Companies Act 1993.
The decision to prohibit
We identify appropriate candidates for prohibition from various sources, including liquidators, media outlets and members of the public.
The candidate must have been a director or manager of 1 or more companies that have failed in the previous 5 years — for example, a company that has been placed into voluntary administration, receivership or liquidation.
We assess whether mismanagement contributed to the failure of the company, or companies. If so, the candidate is notified and given time to make submissions or representations.
This process differs between single and multiple company failures. If the candidate for prohibition has been a director or manager of:
- 1 failed company, we must be satisfied that mismanagement has occurred.
- 2 or more failed companies, the candidate must satisfy us that:
- all, or all but 1, of the companies were not mismanaged, or
- that it would not be just or equitable for us to prohibit them.
We're given all relevant information to make an informed decision, and will:
- prohibit the individual from managing companies for a period of up to 10 years, or
- not prohibit the individual for various reasons — for example, if unable to establish (in the case of a single company failure) that mismanagement caused the failure of the company.
Prohibition following conviction
An individual is automatically prohibited from managing a company following a conviction for an offence in connection with:
- the promotion, formation, or management of a company, or
- a dishonesty offence under the Crimes Act 1961.
Automatic disqualification following conviction
You can't be a director if you've been:
- convicted of any offence in connection with the promotion, formation, or management of a company, or
- convicted of a dishonesty offence as defined in the Crimes Act 1961 — for example, theft, fraud, deception, pecuniary advantage.
The disqualification takes effect from the date of your conviction, and lasts for 5 years.
Under Section 382 of the Companies Act, an individual is automatically disqualified following conviction if they've been convicted of:
- any offence in connection with the promotion, formation, or management of a company, or
- a dishonesty offence as defined in the Crimes Act 1961— for example, theft, fraud, deception or pecuniary advantage.
Publication of prohibition orders
If you've been prohibited from managing companies under either Section 382 or Section 385 of the Companies Act, your name may be recorded in the Companies Office database of disqualified directors for the duration of your prohibition.
If you were subject to a Section 385 prohibition, your name will also be published in the New Zealand Gazette.
Penalties for acting while prohibited
If you're convicted of breaching a prohibition order, you can be:
- imprisoned for up to 5 years, or
- fined up to NZ$200,000.
Why we need prohibition
Prohibition provides protection for the public from company directors and other individuals who have been unscrupulous, incompetent or irresponsible.
It also acts as a deterrent, and helps set good standards of behaviour for directors and others involved in the management of a company.
Prohibition is faster and more cost-effective than prosecution, and has a similar market benefit in that it removes high-risk individuals from the commercial arena.
Prohibition of a director can't:
- remedy any wrongs done to a company's shareholders or creditors, or
- result in the recovery of any money lost as a result of that director's actions.
Reporting a breach
You can lodge a complaint if:
- you believe a director has been involved in the mismanagement of a failed company, or
- you're aware of an individual who has been convicted of a relevant offence under the Companies Act.