Shareholder Protection

For business owners who give personal guarantees

You own your own company, which means you are a shareholder, director and often an employee. When you started out you were probably told that one of the benefits of a limited liability company was that your personal assets and wealth were protected. You may even have gone one step further and set up a trading trust to give an extra level of protection.

So everything is fine - right?                     WRONG !!!!!!!!

The advice you may have been given was fine as far as it goes, but it is a fact of life that you have to give personal guarantees in your business. Just think for a minute about who you have given guarantees to. The list can get pretty scary and include:
  • Your bank for working capital and loans
  •  Hire purchase and lease companies for your equipment and vehicles
  • Your landlord for your premises
  • The IRD if you trade as a "loss attributing qualifying company" or LAQC
  • Key trade suppliers
If the worst should happen, you could find yourself in the horrible position where:
  • You are paying out to guarantee creditors at a time when you are most vulnerable
  • You become an "unsecured creditor" of you own company for money paid out
  • You face a total loss and get nothing back once liquidators fees and preferential creditors have been paid.
  • You have lost your livelihood
  • You may have lost your family home
  • You may be bankrupted, so a prohibited from starting over with a new company.
But of course, none of this can happen to you because your business is profitable and successful. Kim Powell, a director of EDX was a business banker for many years and has also been a receiver and liquidator. He has seen many successful businesses fold overnight. Here are a few examples:
  • Large bad debt - just think of the building company collapses or Ansett. The ripple effect of insolvencies can be terrible.
  • Major contract dispute - you don't get paid until it is resolved and get distracted from good business while you are sorting it out
  • Loss of a major customer - you may have equipment and resources committed to the business and cannot downsize quickly without a large loss
  • Some event such as fire, earthquake of loss of computer systems which causes a long interruption to production (and cash flow)
  • Failure of key supplier which means that you cannot meet your obligations to customers
  • Fraud by an employee
  • Death or incapacity of a key person
  • Change of regulations - such as suddenly allowing a flood of cheap imports

The list goes on........

So even if you business is highly successful, you can still get sideswiped and suddenly face a crisis from which it is very hard to recover. if the worst should happen, you are almost powerless to influence the outcome and often face total loss.

There is a better way. Kim has drawn on his experience and we have worked with one of New Zealand's leading law firms to design a product (or more properly a framework) which will give you an unparallelled level of protection. The objectives of the framework are simple:
  1. To give guarantors a range of options - enabling them to take control of the business and work for the best outcome, and
  2. If the very worst should happen - improve your standing in the liquidation by ranking as "secured creditors" for money paid out and for any loans made to the company.
The objectives are simple - the effect is profound. It could make the difference between losing your home and having a fighting chance to save something from the ashes.

But you must act now - if you wait until a crisis happens it could be too late. There are provisions in the Companies Act 1993 which reduce your options and the effectiveness of the framework.

Next steps

It is important to understand the framework before you decide to go ahead. So here are a number of choices:
  • To browse the "Frequently Asked Questions on this website <click here>
  • To download the EDX e-book "Shareholder protection framework" which fully explains the framework and the benefits <click here>
  • For more information contact us on +64 9 558 0037

A final note for guarantors

This framework give you the ability to act if something goes wrong - you will have a powerful range of options, but it is vitally important that you know what to do. It is a legal minefield and involves an understanding of the Companies Act 1993, the Receiverships Act 1993 and the Personal Properties Securities Act 1999.

The EDX "promise" is that we will stand behind our framework. When the going gets tough, we will give you expert advice on the best option. We are well qualified to do this because of Kim Powell's skills and experience. He has worked as an insolvency practitioner in London, Sydney and Auckland. He has been a senior business banker. For the last 5 years he has specialised in the Personal Properties Securities Act. He is a qualified Chartered Accountant and holds a certificate of public practice. His commitment is to guide you to the best outcome!