EXLD548-11GB Commercial Law and Corporate Governance Jens Mueller

Legal Article Analysis

ID Date

: 1164041 : 12 September 2011

ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance

Introduction

In this analysis would be discuss legal issues regarding the case against Michael Colosimo who was banned from leaving the country after he was found guilty of the charges accused by Michael and Sue Dyke of providing false financial documents to induce the couple to buy from him a floating restaurant called Kestrel at the Landing.

Case Background

Michael Colosimo, who through his former company Cervino Holdings Ltd. used to own the floating restaurant Kestrel at the Landing and was accused last year of fraud by Michael and Sue Dyke who bought the ship business in 2007. The charges against Colosimo are based on providing false financial documents to the couple when they were considering buying the floating restaurant being those documents the ones that influenced the purchase.

When Cervino Holdings Ltd. still owned the Kestrel, the company owed a lot of money to its creditors and once the restaurant was sold, Cervino Holdings went into voluntary liquidation being Colosimo able to walk away of legal issues.

As when the Dykes bought the Kestrel it already had a bad financial situation, in 2008 they also had to go into voluntary liquidation with the ship business.

After analysing all the facts of the case the judge found Mr. Colosimo guilty of the
ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance

charges that he had been charged and in the meantime his sentences is dictated he has been forbidden of leaving the country.

Analysis

Michael Colosimo has been accused of financial fraud and therefore, under the New Zealand Laws he committed a crime and would be judge by the state, but can he be held liable?

In New Zealand there are a number of legislations and regulations for businesses, products and services that are sold or offered in the country (Ministry of Economic Development, 2011), and when someone dont respect those regulations its judge by NZ Criminal Laws which state that all crimes are by statute (Muller. J., 2011).

Before the ship business was sold to the Dykes the owner of the Krestel used to be Cervino Holdings Ltd., which was an incorporated company which principal owner and Director was Colosimo. Being Cervino Holdings Ltd. an incorporated company gives Colosimo the advantage of having limited liability.

There have been identified three legal issues that concern this case the ones that would be analyze with the IRAC analysis method.

Issue number 1
ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance

Issue: Misrepresentation of financial statements.

Rule of Law: It is illegal to alter a company's financial documents.

Analysis: Misrepresentation is when one of the parties induces a contract using false information. (US Legal, 2011)

Michael and Sue Dyke decided to buy the Krestel after looking to the financial documents of the business. When they entered into the buying contract they didnt know that the financial documents that they saw had been forged and as a consequence they end up suffering a pecuniary loss.

Kevin McFadden use to be Cervino Holdings Ltd. accountant and he created the financial data for the company for the period between February and September 2005 financial year and as a witness to the case he saw the financial documents that were presented to the Drakes and he declare that they do not look like the ones that he created and as a company director and representative Mr. Colosimo had complete access to those financial documents.

The Cervino Holdings Ltd. was the owner of the Krestel and the principal owner, director and the representative of the company was Michael Colosimo who was also

ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance

the one that falsify the legal financial documents.

Conclusion: Mr. Colosimo took advantage of that business was conducted through Cervino which was a limited company, which make him thought that he was protected and therefore not liable but because he was directly the one that falsify the documents in these case he can be found liable as he was in completely aware that he was committing fraud.

Issue number 2

Issue: Fiduciary Duty

Rule of Law: You should put the interests of your company first.

Analysis: The fiduciary duty is about putting the interests of the company that you work in or represent before yours. Fiduciary duty is about being loyal and honest.

In the case of the ship business Mr. Colosimo knew that the Krestel was not doing well, and instead of trying to save the floating restaurant, he just falsified documents to sell it as fast as possible and therefore he put his interest first taking out all the money he could and selling it knowing that it was in bankrupt.

ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance

Conclusion: As Mr. Colosimo was also the owner of the business, which created also a conflict of interests and therefore, he decided to put his interest first instead of the ones of the company that he was representing which make him liable.

Issue number 3

Issue: Voluntary Liquidation

Rule of Law: Voluntary liquidation is good only when there is no way to turn the situation.

Analysis: Liquidation is when a business in order to close down sell all its assets turning them into cash, which in part is used to get discharged form its liabilities and the rest of the funds are divided between shareholders and other investors. (US Legal, 2011) Sometimes companies are not even able to pay the money that owes. Liquidation is good when a company is loosing money and there is no way to stop it and start recovering.

When the Dykes bought the Kestrel Colosimo was already owing 6 months of PAYE obligations and his bank statements showed that the cheques he was using to pay different thing did not have founds. When Cervino Holdings closed down, the company owed $1.2 millions to its creditors.

ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance

After selling the ship business Cervino Holdings Ltd. went into voluntary liquidation, which means that the owner, in this case Michael Colosimo, just decided not to continue with the business while it still solvent and proceeded to sell everything and pay suppliers and creditors.

To decide if a company should go into liquidation it might be helpful to undertake a solvency test in which would be observe the ability of a company to pay its debts and if the value of the companys assets are greater than its liabilities.

An alternative to liquidation would have been to sell the business but it might had been possible if the decision had been taken before the company has completely failed. (US Legal, 2011)

Conclusion: As Cervino Holdings Ltd. was not being able to pay its debts and therefore it was not being a sustainable company the best thing to do was to go into liquidation.

Conclusion

The case in which Mr. Michael Colosimo is involve is a very good one to analysis as it covers different sort of legal issues as is misrepresentation, fiduciary duty and
ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance

voluntary liquidation.

As can be seen in the article, Mr. Colosimo knew very well what he was doing and he took advantage of all the situation regarding the Cervino Holdings Ltd. and the Krestel restaurant and therefore it was pretty clear his liability over the case.

References

Gerbic, P., & Miller, L. (2010). Understanding commercial law (7th ed.). Wellington: LexisNexis.

ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance

Ministry of Economic Development, (2011). Regulatory Information Portal. Retrieved from http://www.med.govt.nz/templates/StandardSummary____41062.aspx

NZ Herald. (2011). Former Kestrel owner guilty of fraud.

Retrieved from

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10749521

US Legal. (2011). Misrepresentation Law & Legal Definition. Retrieved from http://definitions.uslegal.com/m/misrepresentation/

US Legal. (2011). Liquidation Law & Legal Definition. Retrieved from http://definitions.uslegal.com/l/liquidation/

Walker, G., Reid, T., Hanrahan, P., Ramsay, I., & Stapledon, G. (2002). Section 2501-2509: Liquidation. Commercial applications of company law in New Zealand. Auckland, NZ: CCH. pp. 453-463.

ID. 1164041/ EXLD548-11GB Commercial Law and Corporate Governance