Directors are people in a position of trust. They are therefore
held to a high standard of care in their role and subject to a
number of duties. Many of these duties are set out in the Companies
Act 1993 ("the Act").
Broadly, Directors have a duty to:
• Act in good faith and in the best interests of the
• Exercise powers for a proper purpose;
• Comply with the Act and the company's Constitution;
• Not engage in reckless trading;
• Not incur an obligation on behalf of the company that cannot be
• Exercise care, skill and diligence;
• Disclose any interest they may have in a transaction;
• Use information obtained in their capacity as a director in an
Where a director fails to comply with a duty to the company or
shareholders, the director may be subject to an action brought by
the company, a shareholder or a creditor. The Companies Act
provides various ways in which an action can be brought against a
director and grants the Court a wide discretion to grant any remedy
it sees fit. Such remedies can include:
• Compensation or a fine (payable by the director
• Setting aside a transaction;
• An order for the director to perform a particular action;
• Putting the company into liquidation.
Following the failed finance company cases that have come before
the Courts, and the media, in the past 24 months, new legislation
before Parliament looks to criminalise two of the director duties,
being the duty to act in good faith and in the best interests of
the company; and the duty not to engage in reckless trading.
Director duties are not to be ignored!
There are various courses available for directors to up skill on
matters of governance. A good start is the Governance Essentials
Course offered by the Institute of Directors. Check out www.iod.org.nz for details.