Businessman John Little was held personally liable to pay all debts of the insolvent corporate trustee managing his trading trust after taking cash for personal expenses at a time when the trust was insolvent. Total debts are yet to be finalised, but likely will be in excess of $300,000.
The High Court was told Mr Little was sole director and shareholder of NZ Natural Therapy Ltd, the corporate trustee for his business: NZ Natural Therapy Trust. A trust is an accounting entity, but is not a legal entity. Assets and liabilities of the trading trust lay with Therapy Ltd, the corporate trustee. Evidence was given of the business being insolvent from 2008. Mr Little continued trading the business whilst insolvent. An increase in bank overdraft was negotiated to boost working capital at a time when profitability was decreasing. Mr Little operated a network of entities and trusts which Justice Brewer said was used for tax advantage. There was a two-way flow of funds between the trading trust and a second trust (Woodside Trust) which owned property and held shares in another family business. Liquidity considerations governed which way funds flowed.
Deloitte, as liquidator of NZ Natural Therapy Ltd, said it received no co-operation from Mr Little after his company went into liquidation. Mr Little could not explain what had happened to the detailed accounting records he claimed once existed. Mr Little complained that trust financial statements he had signed off each year were inaccurate. Justice Brewer ruled the financial statements signed by Mr Little are to be accepted as correct unless he can provide evidence to the contrary. The 2012 financial statements showed Mr Little owing his trading trust, and by extension the corporate trustee, a total of $323,148. Mr Little was ordered to repay this money. Deloitte analysis of bank records indicated much of this money was used for personal expenses, such as school fees and credit card bills.
In addition, Mr Little was held liable for failing in his duties as a director of Therapy Ltd; failing to act in good faith, reckless trading, incurring debts that the company could not perform and failing to keep proper accounting records. He is personally liable for Therapy Ltd debts and liquidation expenses in excess of the $323,000 borrowings he has been ordered to repay.
Mr Little was criticised for what were called ‘post-liquidation sales’. This amounted to Mr Little having Therapy Ltd through its trading trust enter into a management contract with another of his companies, Prince and Princess Ltd. For the 2014 and 2015 financial years his trading trust billed Prince and Princess $166,000 for management services supposedly provided. The court was told Prince and Princess paid the bill, claiming this as an expense in its tax accounts; the trust didn’t receive any money. Mr Little could not explain where the money went. Justice Brewer said this was implausible. At that time, Mr Little controlled both Prince and Princess Ltd and NZ Natural Therapy Trust.
NZ Natural Therapy Ltd v. Little – High Court (22.08.18)
18.169