New Zealand Law Society - Payment of a fine takes priority over payments to shareholders and directors

Payment of a fine takes priority over payments to shareholders and directors

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By Lucy Moffitt

A substantial increase in maximum penalties under the Health and Safety at Work Act 2015 has seen companies submitting financial hardship at sentencing and has resulted in many fines, that might otherwise have been imposed, being significantly reduced, or not imposed at all.

Where a company legitimately has very limited financial means at the time of the offending and sentencing, this approach is necessary to give effect to the applicable sections of the Sentencing Act 2002. Sometimes, however, a company’s financial circumstances at sentencing may appear to be significantly more dire than they were at the time the offence was committed. In the recent sentencing appeal decision of YSB Group Ltd v WorkSafe New Zealand [2019] NZHC 2570, the High Court highlighted the need to be aware of how corporate offenders can present their financial circumstances to appear less able to pay a fine.

Under the Health and Safety in Employment Act 1992 the maximum fine for breach of a strict liability offence was $250,000, and $500,000 in respect of a knowledge offence. Under this legislative regime, submissions of financial incapacity were less common at sentencing. It is perhaps not surprising that when fines increased under the Health and Safety at Work Act 2015, the frequency of financial incapacity being raised at sentencing also increased significantly. The maximum fine under the Health and Safety at Work Act, for a strict liability offence, in respect of a PCBU that is not an individual, is now $1.5 million and for a reckless offence $3 million.

YSB Group Ltd was sentenced in the District Court in respect of an offence of failing to ensure, so far as reasonably practicable, that the health and safety of other persons was not put at risk from work it was undertaking. The offence related to the death of a member of the public who fell from his mobility scooter while attempting to avoid a damaged and uneven section of footpath. The damage had occurred during construction work.

In the District Court, YSB Group was fined $100,000 and ordered to pay a further $100,000 reparation. The fine had been reduced from a starting point of $550,000 to take into account mitigating factors and financial capacity. YSB Group appealed the fine imposed to the High Court. The appeal hearing focused on whether or not the District Court had made sufficient allowance for YSB Group’s ability to pay the fine. YSB Group submitted that the fine imposed should have been no more than $15,000. WorkSafe submitted that sizeable payments had been made or were proposed to be made to shareholders and directors of YSB Group since the incident, and that these amounts could have been applied to the payment of a fine. The High Court found that payment of a fine is a higher priority than payments to shareholders and directors of a company.

On reaching this position, the High Court also considered the need to ensure deterrence of corporate offenders (both generally and in the particular case).

The High Court found, at [41] of the decision, that this was: “ … not a case where the company genuinely lacks funds to pay a fine; it is simply a case where there is money to pay the fine imposed, but this will mean shareholders and directors will receive less than they otherwise would have received had the company not offended in the way it did.”

The court determined that the fine should not be reduced as it was not manifestly excessive or arrived at through any error on the part of the sentencing judge. The appeal was dismissed.

This decision has provided useful guidance in the sometimes challenging area of sentencing corporate offenders. The decision is likely to result in a reduction in the number of submissions based on financial incapacity at sentencing, where that financial capacity is a result of how the corporate offender has allocated its funds.

Auckland barrister Lucy Moffitt was previously a senior solicitor with WorkSafe New Zealand.

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