A recent High Court decision, Batley v MacDonald [2025] NZHC 974, has sent another clear warning to company directors across New Zealand: when a business starts to sink, misusing funds to keep the ship afloat while topping up your own interests is not an option. It is also a reminder to homeowners to take care when providing deposits on residential building contracts.
A Company That Was Broke — But Kept Trading
The Court found that the building company had been balance sheet insolvent for at least four years before its liquidation. Yet, rather than winding up the company or restructuring responsibly, Mr MacDonald — the sole director of the building company — continued trading.
Under sections 135 and 136 of the Companies Act 1993, directors must not trade recklessly or allow a company to incur obligations it is unlikely to perform. In this case, the evidence was overwhelming: deposits from new construction contracts were used not for the intended building work, but instead to pay off old debts. Even worse, the Court heard that some of those funds went towards Mr MacDonald’s personal expenses — including renovations to his own home, paying interest on personal loans, and funding his racehorse interests.
The High Court found Mr MacDonald in breach of his duties. He was held personally liable to compensate the homeowners for their losses — namely, the deposits they had paid.
Directors: You’re Not Untouchable
Batley v MacDonald serves as another cautionary tale: directors cannot treat company funds like a personal ATM. The judgment reinforces that the statutory duties under the Companies Act are not mere technicalities — they are vital guardrails to protect creditors, maintain market confidence, and ensure directors act responsibly when their company is in trouble.
For anyone sitting at the board table, this case is a timely reminder that once insolvency is on the horizon, your priorities should shift from profit to preservation. Failure to do so can lead to personal liability.
Homeowners: Beware
While Batley v MacDonald is a particularly bad example of contractor misconduct, it is not uncommon for building companies to go into liquidation — even when directors are acting in accordance with their duties. This can happen right at the start of a build, when you have nothing to show for the deposit you’ve paid upfront.
This case is another reminder for homeowners entering into a residential building contract to ensure there are contractual conditions in place that protect how their deposit will be used — and/or that appropriate safeguards are included in your contract before any deposit is paid.
If you would like further or more specific advice on construction related issues, get in touch with Rebecca Richter, our construction law expert.