Embattled MP could be on the hook for unpaid wages after business fails

Former Greens MP Darleen Tana used to be a co-director of E Cycles NZ Ltd trading as Bikes and Beyond.? The Companies Office website indicates that Tana resigned as a director on 1 April 2019 which we understand was to avoid the perception of a conflict of interests.? Tana’s husband Christian Hoff-Nielsen was the sole director and shareholder from that point, until the company was placed in liquidation last week.?

The initial liquidator’s report indicates debts of a little under $0.5M, an unremarkable figure for a business this size.?? Khov Jones is the liquidator of E Cycles NZ Ltd and in an unrelated matter, the receiver of two name-suppressed business owners who are subject to a criminal investigation that we are following.

Mainstream media has reported extensively on Tana’s continued involvement in the business because allegations of migrant exploitation have been made.? ?That led to her expulsion from her party.

For example, a 9 July 2024 RNZ article ?states “Workers at the centre of migrant exploitation claims are not interested in whether the Green MP allegedly involved resigns from Parliament - they just want their wages.”, and?“Nathan Santesso is an advocate for two former Bikes & Beyond workers, who have since filed claims with the Employment Relations Authority.”

Piercing the corporate veil

When companies collapse, wage arrears are not uncommon.? Wages and holiday pay are protected to the extent that under Section 142W a worker who is owed wages and holiday pay can pursue whoever they believe is involved in the breach.? Usually that’s the director(s) but not always.? ?In Moulton-Harden v Everett (2022) ?the person who had to cough up was not the director, but his wife who had been handling the payroll.

The liquidator’s report has, among the short list of preferential creditors, wages and holiday pay “to be determined”, ie: an unknown amount to be determined by the Authority.? It appears that Khov Jones has made allowances for this, and the wage arrears amount should be known well before the liquidation process is complete.? That could in theory get Tana off the hook.? But given that there other preferential creditors, the liquidator could deliver to those other creditors a slightly bigger slice of the pie if it waits for the Authority to find Tana personally liable for the non-payment of wages and holiday pay.

In Everett, the company Rexjoy Enterprise Ltd was originally liable for penalties of around $18,000 to former employee Ms Moulton-Harden, but the company was subsequently put into liquidation and none of the penalty liability could be assigned to the Everetts – only wage arrears and holiday pay.? Similarly, we believe the imposition of penalties in the E Cycle matter would be unlikely to happen.

Slippery slope

More broadly this is about the importance of small businesses putting employees’ wages first when cashflow and even general profitability is an issue – suppliers with overdue accounts will usually understand this because many will have been in a similar situation.? There’s little doubt that E Cycles was struggling before the allegations of migrant exploitation were publicised in March.? But its general mishandling of the subsequent filing in the Authority (including confronting the former employee at their new workplace threatening to bring a “defamation” SLAPP) and loss of sales due to potential customers’ knowledge of this, probably tipped the business into liquidation.

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Tana could be on the hook for back wages ( leightonassociates.co.nz ) - 25 July 2024