New directors liable for previous capital raising

Did you qualify your investors in your company as “qualifying” under the securities act as “eligible investors”. Friends or close business associate ..yeah right  

Recently we have seen a few companies with long lists of existing shareholders looking at raising capital. 

Andrew Simmonds has kindly made me aware of a recently published cash where new directors were held accountable….

A recent High Court case (summarised in the Minter Ellision newsletter) puts a slightly different spin on the DD required by incoming investors/directors re Securities Act breaches.

The ins and outs of the case are a bit complicated, but it suggests that directors who join a company within 6 months or so of an illegal share issue could be personally liable for amounts invested in that share issue, if the company fails to pay the amounts back when requested to do so.  This will mean that early stage companies are going to get greater scrutiny of past share issues by incoming investors.

This will hopefully still not cause a problem for you, but I thought I should bring this new development to your attention.

Kind regards
Andrew Simmonds – www.simmondsstewart.com

(reference case summarised in the Minter Ellision newsletter http://www.minterellison.co.nz/publications/CorporateGovernance18March2010.pdf )

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