Conviction Shows Importance Of Financial Standards
FOR IMMEDIATE RELEASE
Conviction Shows Importance Of Financial Standards Requirements
WELLINGTON, 19 July 2002 -- Financial standards in company accounts are important, and will be enforced. Shane Keohane, Manager of the Companies Office Enforcement Unit, emphasised this when commenting today on the plea of guilty of the Chief Executive of Qantas NZ on three charges of breaching the Act.
The Financial Reporting Act 1993 requires companies to complete annual accounts in accordance with accounting standards set by an independent board. Companies have to complete this within specified periods, and in most instances also have the statements audited.
Companies which have 25% or more overseas ownership must also file those accounts for public inspection in the Companies Office. This provision did not apply to Qantas NZ, as its New Zealand shareholding (after some sales and transfers from Australian interests) was just over 75% at balance date.
The Chief Executive of Qantas NZ, Mr Kevin Doddrell, who had also held that position when the airline was owned overseas, today pleaded guilty in the District Court at Auckland on three charges of failing to complete accounts for the period ended 30 June 2000.
“In this instance”, Mr Keohane said, “the Registrar has accepted that this plea and conviction is a sufficient response to the breach.”
“The Act provides for any director to persuade a court that, even if a breach has occurred, that particular director had taken reasonable steps to ensure that the company complied with the Act.”
Initially charges were laid against all directors. Three directors provided evidence which led to the Registrar to conclude, after considering the advice of prosecution counsel, that they were likely to establish the defence of reasonable steps.
“The remaining four directors, who held positions which were more directly connected to the financial and audit requirements, had pleaded not guilty and indicated that they would defend the charges”, Mr Keohane said. “Mr Doddrell’s decision to change his plea was a proper recognition that the failures had occurred. It is not considered that the public interest, in this case, requires three further prosecutions to proceed.”
The charges related to the initial period between late February 2000, when a New Zealand syndicate purchased all the shares in Ansett New Zealand through an investment company Zazu Limited, and 30 June 2000 which was the end of the financial year for the airline.
“Trading losses were incurred during that period, which was before the Qantas NZ franchise was put in place”, Mr Keohane said. “A factor taken into account in making a decision on the prosecution was that internal financial systems appear to have been adequate, and those creditors who were entitled to financial information about trading appear to have been able to obtain sufficient information. In addition, the accounts, if they had been completed, would not have been disclosed publicly.”
However there were also substantial issues in respect of the breach, said Mr Keohane. As the accounts were not completed on time (or indeed at any date before the airline went into receivership in April 2001), an audit was not completed, and directors and auditors did not have to consider and certify whether the airline met a “going concern” test.
The Act provides penalties of up to $100,000 per charge, which Mr Keohane said is a clear indication of the commercial importance of the provisions.
He said. “The provisions are intended to be self-enforcing as a failure to comply has a number of consequences under other provisions in the Companies Act 1993. For example, audited accounts are required for prospectuses and many annual reports. In consequence the Registrar does not expect to have to prosecute on many occasions – but this prosecution should make it clear to all directors that such action will be taken where a breach is identified.”