Restaurant highlights need to accept risks
Business owners who take risks and fail have the right to give it another go, a law professor says.
The question of how easily business owners can walk away from a failure has been in the spotlight since Glasses cases, trading as New York-style restaurant Five Boroughs, went into voluntary liquidation on January 8.
Early coverage of the Wellington business failure painted it as a positive step, and a chance for the owners to make another start.
University of Auckland commercial law professor Mike Gedye said people needed to be confident about taking chances, to encourage business innovation.
‘‘Without the ability, people wouldn’t take risks and wouldn’t start up new business ventures,’’ he said.
‘‘So the basic theory behind it is sound, the problem is occasionally people abuse it and they have one company collapse after the other, and they just go from one company to the next.’’
Gedye said there were procedures in place to prevent that, such as a ban on creating a ‘‘phoenix’’ company with virtually the same name.
‘‘Also, if the directors have been acting improperly, then the registrar of companies can pursue them for insolvent trading, or even have them banned from being directors for the companies,’’ he said.
‘‘Outside of that, assuming they haven’t been doing anything fraudulent or trading while insolvent, they generally are free to go on and form a new company and start again.’’
The failed Five Boroughs diner collapsed owing more than $440,000, including $32,000 in staff holiday pay. That has since been paid by owners and directors Bryn Thomas and Elie Assaf by way of a personal loan.
The pair also own Five & Dime on upper Cuba St, which has also been closed to make way for the new Five Boroughs restaurant.
Gedye said directors faced difficult decisions when companies get into a difficult financial position.
‘‘They simply can’t keep trading otherwise they’ll be liable for trading while insolvent.
‘‘So one of the options, if the company gets into strife, is they will try and get it out of strife, but when they see it’s hopeless, then one of the options is to go into voluntary liquidation,’’ he said.
‘‘And then if they’ve gone and started up another company, then they are entitled to do that.
‘‘We want people to take some risks and if they fail then they should be able to get up and have another opportunity.’’
"We want people to take some risks and if they fail then they should be able to get up and have another opportunity."
Commercial law professor Mike Gedye