Beneficiaries recruited as ‘dummy’ directors for liquidated companies

Liquidation is an ‘unsavoury’ business. Before their companies go into liquidation owing large amounts of money, some directors install a patsy director. Why? Martin van Beynen reports.

Stephen Bruce Murdoch, 36, is a mystery figure who gives his address as a state house in Manurewa in South Auckland but doesn’t live there.

He is also the director of a company which owes about $88 million, not much less than titan construction company Mainzeal owed unsecured creditors when it went bust in 2013 owing $111m. But unlike the directors of Mainzeal, Murdoch had nothing to do with the $88m debts.

The mystery is easy to solve. Murdoch is a dummy director. A more polite term is nominee or alternate director.

People like Murdoch, who are usually paid for the use of their good name, are enlisted to protect outgoing directors from public visibility when their companies go into liquidation. There’s nothing illegal about it and it doesn’t reduce the outgoing director’s liability for their actions.

Murdoch, a former bankrupt, was recruited to replace Farhad Moinfar, a Ferrari-driving Herne Bay businessman, whose company West Village Capital Partners went bust on September 14, 2021. By that time Murdoch had been installed as a new director for about six weeks. Moinfar vacated his directorship on September 13.

The shareholding of the company was also changed. It was transferred to a company belonging to small-time Upper Hutt landscape contractor Logan Jon van Vlierden on the same day as the company went into liquidation. Van Vlierden has a conviction for cannabis growing and stealing power,

West Village Capital Partners developed the 155-unit Union Green apartments in Auckland and lost $35m when its builder Ebert Construction went under. The development was finished by Dominion Construction, but its relationship with West Village ended badly with Dominion winning a mediated dispute. The latest liquidator’s report estimates the company’s debts at $88m.

Moinfar said Murdoch was appointed as his ‘‘alternate’’ director in accordance with the company’s constitution. He did not answer further written questions and declined to provide contacts for Murdoch who could not be reached. Van Vlierden also declined to provide a contact for him.

Murdoch’s directorship of West Village is not his first time as a dummy director. In April 2019 he was appointed a director of construction firm BHSSR Holding, which went into liquidation four days later with debts of about $600,000.

Murdoch replaced director Mark Robert Ensom, whose address is a $3m townhouse in Grey Lynn and who was declared bankrupt on February 27, 2020.

Ensom could not be reached for comment.

Several liquidators approached by the Sunday Star-Times say dummy directors are used infrequently and the activity is sometimes reported to the Companies Office as conduct not consistent with being a good director.

An Auckland accountancy firm, which the Star-Times has decided not to name for legal reasons, has been involved in installing a number of beneficiaries as directors before the companies failed.

The firm won’t say how often it has helped install dummy directors but the Star-Times has identified 12 companies associated with the firm to which dummy directors were appointed shortly before they went into liquidation.

The companies were involved in a wide range of businesses, but what they all had in common was owing large amounts of tax, mainly GST, before they went into liquidation. The dummy directors were paid for the use of their name and details.

For instance, beneficiary Dion Halliday, in his 50s, was appointed to five companies between December 2016 and July 2020 shortly before they went into liquidation. When four of the companies collapsed, they owed a total of about $750,000 in tax.

Beneficiary Dion Koopu was installed as a director to companies between May 2017 and January 2020, the companies owed about $1.4m in tax when they folded.

Halliday and Koopu are also all linked to Christchurch property magnate and lawyer Nick Robertson and his mother Carol, who in 2020 put four companies into liquidation owing about $1.8m in GST and company income tax.

The Robertsons appointed Halliday and Koopu as directors a few months before their four liquidations. Nick Robertson is now facing legal action by Auckland liquidator Grant Reynolds and disputes some amounts alleged to be owing.

Robertson told the Star-Times he first met the dummy directors in his accountant’s office.

He had put in new directors before the liquidations due to a grey area around new rules for finance companies, one of which he operated, he said.

‘‘We weren’t sure whether a director of a finance company could also be a director of a liquidated company.’’

A partner of the firm involved in appointing the dummy directors said ‘‘some members of the public in difficult financial circumstances seek to reduce public association to liquidation or reduce the stress of being in the frontline in a liquidation’’.

‘‘Such practice is veneer in nature, and provides no legal benefit, as directors remain liable for their actions while holding office in a company.’’

He said the firm did not itself recruit the dummy directors but referred clients to a consultant ‘‘who does it’’. He did not have permission to name the consultant and clients were charged by the consultant not the firm.

‘‘In summary, this is really just about reducing association to an unsavoury process. There is no legal benefit, none of the creditors are disadvantaged, as the original directors are liable. The liquidator in practice ignores the nominee directors.’’

Veteran liquidator Damien Grant, who is known for his willingness to take action against directors on behalf of creditors, said he couldn’t see the advantage of appointing dummy directors.

‘‘I don’t understand the benefit. It is a strategy that seems designed to attract unwanted attention, as is occurring here, and encourage aggrieved creditors to take action.

‘‘It is also odd, because a liquidator can look beyond who the nominal director is and pursue the actual director for any breaches of duty... It is also important for directors to understand that failing to account for taxation is a criminal breach of the Tax Administration Act and directors can and do go to jail for not paying tax. The IRD rarely prosecutes this, but if they see this sort of behaviour, it might actually increase the risk to directors rather than mitigate it.’’

According to the Companies Office, a company director’s duties include determining policies, making decisions and preparing and filing statutory documents.

Obligations include acting honestly and not allowing, agreeing or causing the business to be carried out in a way likely to create a substantial risk of serious loss to the company’s creditors. Directors are obliged to ensure the company can pay all its debts and has more assets than liabilities.

Institute of Directors chief executive Kirsten Patterson said there had been cases where dummy directors were vulnerable people who had been taken advantage of.

‘‘A director can’t avoid their duties by being a ‘sleeping’ or ‘silent’ director. All directors are responsible for all duties – this includes dummy directors who are induced or agree to be a director on the understanding it exists only on paper.

‘‘Taking on the responsibility of being a director without any business acumen, experience of the organisation they are governing, or being actively involved is a highly risky move, and not something the institute would recommend.’’

‘‘This is really just about reducing association to an unsavoury process. There is no legal benefit, none of the creditors are disadvantaged, as the original directors are liable. The liquidator in practice ignores the nominee directors.’’

Partner of Auckland accountants involved in appointing dummy directors