DIRECTORS IN NEW ZEALAND – KEY DUTIES

Posted by Kellie Bright on August 23 2022 in News

Directors have a key role in corporate governance. They set the goals and aims of a company, provide leadership and supervision to management, and report to the shareholders. There are clearly defined duties in the Companies Act 1993 that apply to directors, and it is critical that directors are mindful and act upon these duties when carrying out their directorship role.

In addition to the statutory duties and liabilities under the Companies Act, directors have various other duties and liabilities under other legislations (including Health and Safety and Work Act 2015). In addition, directors have duties and liabilities at common law (including fiduciary duties, such as acting in good faith, honestly, and loyally).

The fundamental duty of a director is to always act in the best interests of the company and with reasonable care. As a minimum, a director must ensure that he or she:

• acts in good faith and in the best interests of the company;
• exercises his or her power as a director for a proper purpose;
• not allow the company to be carried on in a manner to create a substantial risk of serious loss to the company’s creditors, or cause the business of the company to be carried on in a manner likely to create a substantial risk of loss to its creditors;
• not agree to a company incurring an obligation unless he or she believes on reasonable grounds the company will be able to perform the obligation when it is required to do so;
• exercises the care, diligence, and skill that a reasonable director would exercise in the circumstances; and
• complies with the Companies Act and the company’s constitution (if any).

A director’s duties also include:

• decision making and implementation of policies;
• calling meetings;
• record keeping and preparing and filing statutory documents; and
• binding the company to contracts.

It is not enough to remain silent or passive. A director has a responsibility to be well informed and participate in decision-making. If a director breaches his or her duties as a director, he or she may be personally liable.

Liability may arise under the Companies Act and other relevant legislation (including the Health and Safety and Work Act), and at common law (i.e. for breach of a fiduciary duty). Breach of duties may result in personal action being taken against a director by the shareholders of the company. There are also over 100 sections of the Companies Act where a breach can constitute a criminal offence. A director can also be liable for a tort (for example, negligence) committed primarily by the company, but through their agency – if they have assumed personal responsibility for their actions.

Having regard to the above, it is important that steps are taken to manage the risks to all board members. These may include:

• Ensuring that all directors are educated and understand their role.
• Ensuring that governance policies are in place covering all aspects of the company, including confidentiality, conflict of interest, and code of conduct.
• Ensuring that operational policies are in place.
• Ensuring that appropriate insurance policies are in place (including D&O).
• Using committees and advisory boards where applicable.
• Establishing effective risk management in operations (including health and safety).

If you intend to become a director, it is important that you fully understand your duties, and the possible liabilities that may arise from your failure to comply with such duties. Do not be silent or passive in your role. Ensure you are fully educated and accountable, and ready to take on the responsibilities that lay ahead.

If you would like more information regarding the above or have any questions, please contact me.

Kellie Bright | Special Counsel | Kellie.Bright@shieffangland.co.nz