Prain v Financial Markets Authority

In Prain v Financial Markets Authority, the Court of Appeal of New Zealand allowed the appeals of the two appellants, Justin Prain and Mark Schroeder, who were directors of Apple Fields Ltd, a company required to register audited financial statements under the Financial Reporting Act 1993. The appellants were charged with failing to deliver financial statements and an auditor's report for the years ending 2011, 2012, and 2013, but they claimed they had taken all reasonable and proper steps to comply with the Act. The Court of Appeal found that the appellants had acted reasonably by relying on the advice of their accountant, who believed that consolidating Apple Fields' financial statements with those of Noble Investments Ltd (Noble), a company which Apple Fields did not control, was necessary. The Court also found that there was no reason to believe that legal advice would have made a difference in the outcome, as it did not appear that Apple Fields could compel Noble to deliver the necessary financial information. Therefore, the Court quashed the orders made against the appellants and held that they had taken all reasonable and proper steps to comply with the Act.

The Court's decision highlights the importance of obtaining professional advice when it comes to complying with financial reporting obligations, and that directors should not be held liable for not complying with the Act if they have acted reasonably in seeking such advice. The Court also emphasised that the appellants' decision to rely on the accountant's advice was reasonable, even if it resulted in non-registration, as long as they honestly believed that the advice was correct and took steps to follow it. This case serves as a reminder to directors that they have a duty to ensure that their companies comply with financial reporting obligations, but also that they are entitled to rely on professional advice in doing so.