Insights & Articles

Providing a guarantee for someone else’s financial commitments can expose you to serious legal and financial risks. Before agreeing, ensure you understand the potential consequences - especially if you won’t directly benefit or lack full visibility and control over the obligation.

When entering relationships with new suppliers, it’s essential to carefully review the terms of trade, especially if they include a General Security Agreement (GSA). While a GSA can offer credit benefits, it also carries significant risks, potentially leading to receivership if payment issues arise. Understanding these terms is crucial to protecting your business.

The Fair Trading Amendment Act 2021 ("Amendment Act") has made recent amendments of the Fair Trading Act 1986 with some terms being extended to small business contracts that will come into force on 16 August 2022.

Companies that provide goods or services on standard terms (including credit terms) should be regularly having a legal health check of their terms and their practices for ensuring the terms they are using accurately reflect their business practices, meet all of their requirements and cover off their key risks – as well as ensuring they are appropriately brought to the attention of customers or clients so that they are valid, enforceable or binding.

Non-Executive or Passive Directors and Directors' Duties: The Courts Take no Excuses for a "Hands Off" Approach

In accordance with Section 131 of the Companies Act 1993 ("Act"), directors have a duty to act in good faith and in what they genuinely believe to be the best interests of the company. While it may be expected that directors should always behave in such a manner, and not place their personal interests ahead of the company's, various judgments have explored the extent of this duty and provided more information about the considerations director should take account of when exercising their powers.

There are many circumstances where businesses might give credit – even without formally doing so. Providing goods or performing services in advance of full payment is extremely common, but if a company or sole trader you are dealing with has financial problems or a poor credit history, then you may not get paid.

In Mainzeal1 the former directors were held liable for a breach of section 135 of the Act. Richard Yan, (who was the founder and main shareholder of Mainzeal's parent company, Richina Pacific) was ordered to pay compensation of $36M. Each of the other directors (Shipley, Tilby and Gomm) were held liable to contribute $6M each towards that $36M.

Many modern businesses consist primarily of technology in the form of intellectual property. Although they may own physical assets and employ staff (though they are more likely to be engaged as contractors) the real value in the business sits almost wholly in the intellectual property developed.