Liability of Directors in New Zealand

Abstract

The risk of company directors in New Zealand being found liable for corporate fault has expanded in recent years. An increasing number of statutory provisions provide for liability for directors. When the Companies Act 1993 was introduced, it was accompanied by howls of outrage from those who felt the duties of directors set out in that Act would make directorship unattractive and those who became directors hamstrung and excessively risk-adverse. A decade and a half on, such fears have proven to be largely unfounded. The increased risk of liability for directors does not appear to reflect any considered policy on imposing liability on directors for corporate actions. Instead, the provisions have been enacted on an ad hoc basis, with existing models adapted to new regulatory issues. While a number of individual provisions, especially section 135 of the Companies Act 1993, have received not inconsiderable judicial and academic comment, there has not been a systematic study of either the approach or the consequences of imposing liability on directors in New Zealand.

The chapter begins with a brief account of the New Zealand legal system. It then provides an overview of New Zealand company law and the relationship between directors and their companies. The following section discusses the principles of the general law under which directors may be found liable for the acts or omissions of their companies. The next section examines the liability of directors for corporate fault in the most important legal areas.