Directors' & Officers' Additional Information

Who is a Director

Section 126 of the Companies Act 1993 provides a comprehensive and complicated definition of the term “director” .

The 1993 Act extends the definition of the term “director”in the 1955 Companies Act and includes a person who:

  • Is in a position of being able to instruct the board.
  • Exercises powers or duties with the board's approval.
  • Has been delegated duties by the board.
In summary the extended definition may include the following in certain circumstances:
  • Company executives whose advice is followed by the board
  • Lawyers and accountants whose involvement in the company extends to more than just professional advice.
  • Executives,employees or consultants to a company who have been delegated responsibilities by the board.
  • Shareholders to whom the constitution gives the authority to decide when powers will be exercised,where those powers would otherwise be exercised by the board.
It is clear therefore, that there is potentially a far more diverse group upon whom the duties and corresponding potential liability attaching to the role of director now fall.

Duties of Directors

In recent years it has become clear that the roles of the company director have become increasingly onerous.

The Companies Act 1993 has greatly increased directors duties and responsibilities particularly with regard to acting in good faith, honestly and for the benefit of the company.

Fundamental duties highlighted in the legislation and in recent cases relate to:
  • The avoidance of conflicts of interest.
  • Acting with care and diligence.
  • The mis-use of information or position.
  • The avoidance of trading whilst insolvent.
  • Compliance with general accounting standards and rules.
Increased Regulation and Focus on Governance

Directors face the prospect of litigation from many and varied sources including being personally sued by shareholders, creditors, competitors, employees, customers and members of the public.

Prosecution may be brought under a number of statutes including The Companies Act, Commerce Act, Securities Act, Fair Trading Act, Crimes Act and the Human Rights Act.

Legal actions may arise from:
  • Shareholders alleging negligent recommendations or public statement regarding takeovers or mismanagement of company assets.
  • Creditors alleging the improper incurring of debt (by the company) or the illegal payment of dividends.
  • Allegations of reckless or fraudulent trading after a company has been placed in liquidation or receivership.
  • Competitors alleging their businesses have been adversely affected by a restrictive trade practice such as price fixing.
  • Employees alleging unfair dismissal, discrimination or mismanagement of superannuation.
  • Customers or others alleging misrepresentation in public statements made by directors and officers or in advertising material disseminated by them.
  • Investors alleging misrepresentation in a prospectus to raise new capital.
Increased regulation will continue to focus the attention of statutory bodies such as the Commerce Commission on issues of corporate governance, with shareholder groups demanding accountability from management in relation to their investments.

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