While not appointed as a director, Dap Sembhi was ordered to pay $312,250 damages as a ‘shadow’ director responsible for NZ Labour Enterprises Ltd losses when trading insolvent.
Established in 2013, Labour Enterprises operated out of Papakura, south Auckland, supplying labour on short term contracts. Listed as director was Amandeep Sembhi, Dap’s spouse. Dap Sembhi was never appointed as a director.
In 2019, Inland Revenue forced Labour Enterprises into liquidation on unpaid tax debts totalling some $390,000; primarily unpaid GST and PAYE. PwC were appointed liquidators.
The High Court was told Dap Sembhi dealt with the liquidators, telling them he was in charge of company operations. His wife was just the ‘written director,’ he said. Mr Sembhi operated the company’s bank account, organised labour contracts and liaised with Inland Revenue, Immigration and Social Development.
Justice Campbell ruled Mr Sembhi was liable as if he were a director of the company. Any person acting in the position of director is liable as a director, even if not appointed as such.
Mr Sembhi as a shadow director and Mrs Sembhi as appointed director were held jointly liable for company losses totalling $312,250. This was the net deterioration in the company’s position between the date the company should have stopped trading (March 2015) when it had a net deficiency of some $84,000 and the date it did stop (May 2019). They were in breach of directors’ duties by allowing their company to continue trading whilst insolvent.
In addition, Mrs Sembhi was held personally liable to repay $686,500 to the company; funds borrowed from the company, including cash withdrawals and money spent on personal and household expenses.
The Sembhis did not appear in court to challenge the liquidators’ claim.
NZ Labour Enterprises Ltd v. Sembhi – High Court (5.05.21)
21.076