Use of Company Name — s 25 of the Companies Act 1993
Under s 25(1) of the Companies Act 1993 (the Act), a company’s registered name must be clearly stated in every written communication sent by or on behalf of the company. The company’s name must also be clearly stated in every document issued or signed by or on behalf of the company that evidences or creates a legal obligation of the company.
Failure to comply with s 25(1) can result in a maximum fine of $5,000 for the company and every director of the company (see ss 25(5), 373(1) and 374(1) of the Act).
Further, where a document that evidences or creates a legal obligation of a company is issued or signed, and the name of the company is incorrectly stated in the document, every person who issued or signed the document may be liable to the same extent as the company if the company fails to discharge the obligation. However, there are two exceptions.
First exception — s 25(2)(c)
If the person who issued or signed the document can prove that the person in whose favour the obligation was incurred was aware at the time the document was issued or signed that the obligation was incurred by the company, then that person may avoid personal liability.
The Employment Relations Authority in Oldridge v Mukund and Priyanka Enterprises Ltd [2016] NZERA Auckland 333 found that, despite the omission of the word “Limited” in describing a company as the employer under an employment agreement, the company was liable under the agreement as all parties confirmed that the company was the employer under the agreement.
Second exception — s 25(2)(d)
If the court is satisfied that it would not be just and equitable for the person who issued or signed the document to be liable, the Court may relief the personal liability.
Section 25(2)(d) applies to where the company’s name has been included in a document but has been technically misstated. The High Court in Southland Building Society v Austin [2012] NZHC 497 observed that if s 25 had applied, it “would not regard the omission of the word ‘Limited’ as misleading in the circumstances”.
Section 25(2)(d) may also apply where it may be unfair to require a director who signed to incur the obligation owed by the company if the document was prepared by another director.
The exception may even apply where the wrong company is named in a document. In Clarence Holdings Ltd v Hall (2001) 9 NZCLC 262, 566 (CA), the directors of a new company entered into a fresh lease agreement with the lessor using the name of the original company rather than that of the new one. This gave rise to a legal dispute when the directors of the new company decided it should vacate the premises. The Court of Appeal noted that the policy of the section was to make a person who signed a document that misdescribed the name of a company personally liable concurrently with the company. However, the exception in s 25(2)(d) applied because no disadvantage had been caused to the appellant.
In contrast, in Ede t/a Electro Sheetmetals Ltd v J A Russell Ltd (2001) 9 NZCLC 262, 539, the director misstated the name of the trading company in a credit application form. He signed the document to create a legal obligation for Electro Sheetmetals and failed to make clear that Stephen Ede Limited (trading as Electro Sheetmetals Ltd) was responsible. The High Court held that the director was personally responsible for the debts of the company under s 25.
The High Court in Rebnik Properties Ltd v Dobbs [2020] NZHC 3494 also held that a person using a trading name could be personally liable if they did not disclose that they were representing a company at the time of contracting.
Brent is the Director of Norling Law. He has a wealth of experience in the District Court, High Court, Court of Appeal and Supreme Court. Brent is passionate about negotiating favourable outcomes for his clients and able to implement this in his daily negotiations.
Anna practices in the area of commercial litigation and has appeared as Counsel in the District Court, High Court and the Court of Appeal, having successes in all Courts. Anna has a special interest in corporate, insolvency and relationship property law.