The Limited Partnerships Act 2008, section 103D, gives the Registrar and the Financial Markets Authority (FMA) the power to prohibit persons who, within the previous five years, have been involved in the management of one or more limited partnerships that have failed due to mismanagement.
What is prohibition?
A person who has been prohibited is not allowed to be a general partner, promoter or manager of a limited partnership during the period of the prohibition.
The court also has the power, in certain circumstances, to disqualify a person from being a general partner, promoter, or manager of a limited partnership without the permission of the court.
Prohibition provides protection for the public from general partners, promoters and managers of limited partnerships, who have been unscrupulous, incompetent or irresponsible.
It acts as a deterrent, and helps set good standards of behaviour for those involved in the management of a partnership.
Prohibition is faster and more cost-effective than prosecution, and has a similar market benefit in that it removes high-risk individuals from the commercial arena.
It is not intended to remedy wrongs done to creditors, and will not result in the recovery of any money that may have been lost as a result of a general partner's or manager's actions.
Definition of a failed limited partnership
For the purposes of section 103D of the Limited Partnerships Act 2008, a failed limited partnership is one that, within the previous five years:
- has been put into liquidation because of its inability to pay its debts as and when they become due
- has ceased to carry on business because of its inability to pay its debts as and when they became due
- in respect of which, execution is returned unsatisfied in whole or in part
- in respect of the property of which, a receiver, or a receiver and manager, has been appointed by a court or pursuant to the powers contained in an instrument, whether or not the appointment has been terminated
- in respect of which, or the property of which, a person has been appointed as a receiver and manager, or a judicial manager, or a statutory manager, or as a manager, or to control under or pursuant to any enactment, whether or not the appointment has been appointed
- has entered into a compromise or arrangement with its creditors
- is in voluntary administration in accordance with section 100 of the Limited Partnerships Act 2008.
Test for prohibition
The test for prohibition varies depending on the number of failed limited partnerships that a person has been involved with in the previous five years.
Persons involved with one failed limited partnership
The Registrar can prohibit only if satisfied that the manner in which the limited partnership was managed was wholly or partly responsible for the limited partnership's failure.
Person involved in two or more failed limited partnerships
The Registrar may prohibit unless the person satisfies us that:
- the manner in which the limited partnership – or all but one of the limited partnerships – was managed, was not responsible for their failure, or
- it would not be just or equitable for the prohibition power to be exercised.
Registrar and FMA's additional power of prohibition
Section 103E of the Limited Partnerships Act 2008 gives the Registrar and the FMA additional powers to prohibit persons from being involved in the management of limited partnerships. This section applies in relation to a limited partnership that has been deregistered on any of the grounds described in section 98A(1)(c), (d), (e) or (f).
The Registrar may exercise their additional power in relation to any person who, within a period of five years, has been a general partner of, or concerned in, or a person who took part in, the management of a limited partnership that was deregistered due to the following:
- the limited partnership failed to respond to a requirement made under section 78(2)(aaa) or (a), or
- the Registrar had reasonable grounds to believe that the limited partnership, or one or more of its general partners, failed to respond to a requirement made in relation to that or another limited partnership under section 78F, 78G, or 78H, or
- the Registrar had reasonable grounds to believe that the limited partnership, or one or more of its general partners had intentionally provided the Registrar with inaccurate information, or
- the Registrar had reasonable grounds to believe that the limited partnership, or one or more of its general partners failed to comply with duties relating to the limited partnership under this Act in a persistent or serious way.
The process includes giving the candidate for prohibition notice of the reasons prohibition is being considered, and an opportunity to make representations before the Registrar decides whether to exercise their power of prohibition.
Term and effect of prohibition
Prohibition lasts for a period not exceeding 10 years, and prevents a prohibited person from being a general partner or promoter of a limited partnership, or being concerned in, or taking part, whether directly or indirectly, in the management of a limited partnership.
In certain circumstances, the court can disqualify a person from being a general partner, promoter or manager of a limited partnership without the permission of the court, including for periods exceeding 10 years.
Notice of a decision by the Registrar or the FMA to prohibit is given to the person prohibited and published in the New Zealand Gazette. Notices in the Gazette form part of the complete and official public record, and cannot be removed.
Automatic prohibition on conviction
In addition to the power of prohibition by the Registrar or the FMA, a person is automatically prohibited from acting as a general partner, promoter or manager of a limited partnership if they've been convicted of:
- an offence in connection with the promotion, formation or management of a company that is punishable by a term of imprisonment of not less than three months
- an offence under sections 377 to 380 of the Companies Act 1993
- any crime involving dishonesty as defined by section 2(1) of the Crimes Act 1961.
The period of automatic prohibition is for five years after the conviction or judgement. A person automatically prohibited may apply for leave of the court to be a general partner, promoter or manager of a limited partnership during this period.
Penalties if a person acts as a general partner while prohibited
The Limited Partnership Act 2008 makes it an offence for any person to breach a prohibition, punishable on conviction by imprisonment for a term not exceeding five years or a fine not exceeding $200,000.
Searching the register for prohibited persons
You can search for a prohibited person on the Limited Partnership Register by carrying out a prohibited general partner, promoter or manager search.
For current bankruptcies you can search the insolvency register on the Insolvency and Trustee Service website.
Persons disqualified from being general partners
Section 19A(2) also disqualifies certain persons from being appointed or holding office as a general partner of a limited partnership.