LETTER: Companies Act 2017 woes

Tuesday 8 June 2021 | Written by Supplied | Published in Letters to the Editor, Opinion

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Daily letters for Tuesday June 8, 2021

Dear Editor

I read with great interest in your Saturday’s issue about the now realised draconian corporate consequences of failing to heed the exhortations to re-register pursuant to s.407 of the Companies Act 2017 as described in s. 408 and Part 16 of that Act (nullity, property vested in the Crown etc).

Tim Arnold correctly observes some of the implications arising from this situation and while ‘walking dead’ is probably an apt description of those companies, now de-registered, for those that are continuing to trade, it does conjure up that spectre most directors should be fearful of.

Are those companies which failed to re-register, and  now nullities, and whose assets have been statutorily expropriated,  now running the risk of carrying on business fraudulently (s.394) or incurring debt while insolvent (s.396) either of which carries on conviction a fine not exceeding  $100,000 or to imprisonment for a term not exceeding 7 years, or both? Technically one might think so.

Could this predicament have been avoided? One would have expected that 12 months of adequate public pronouncements should normally have been sufficient notice to companies to get their collective act together but clearly it was not. Less complacency and closer progress monitoring by the Ministry on compliance would have produced better results. By the same token have the professionals failed their clients?

The Saturday piece referred to a proposed salvation in the form of an amendment  to the Act and that no doubt would be good news for those worried directors and shareholders.

Part and parcel of such backdoor remedial action would, however, I imagine , necessitate serious consideration of what to many is an offensive and potentially dangerous legislative tool namely retroactive application and the forgiveness of offences and one wonders whether there is even an appetite for this because how could those be circumscribed and contained?

There is perhaps another angle to this. The question is does the Companies Act 2017, by unilaterally purporting to compulsorily confiscate the property of delinquent companies, contravene the Constitution and because the Companies Act was not passed in conformity with Article 41 is it ultra vires the Constitution?

The lawyers should, in my view, be first addressing this question before embarking on any amendment because if such an argument can be sustained some other issues come into play and amending legislation might be a complete waste of time.

Some years ago, I exchanged some notes with Tim on the dichotomy existing between Articles 39(4) and Articles 41 (1) of our Constitution and those could well be relevant here.

If indeed the constitutionality of the Companies Act can be challenged then the points Tim and I were to engage become very relevant.

One would then need to consider does Article 39(4) allow the severance only of the offensive provisions of the Companies Act or, does Article 41(1) deem the entire Act not to have been properly passed and consequently is itself a nullity?

John M Scott