NEW ZEALAND Law and Practice Contributed by: Graeme Quigley, Ashton Goatley and Erin Hickey, Webb Henderson
• Section 138A creates an offence for serious breaches of the duty of good faith. Such a breach will occur when a director, during the course of exercising their powers, acts in bad faith towards the company, believes that the conduct is not in the best interest of the company, and knows that the conduct will cause serious loss to the com - pany. “In short, the offending requires dishonesty” (see Spence v R (2021) NZCA 499 at [36]). • Section 380 creates an offence for dishonestly failing to prevent a company from incurring a debt where the director knows that the company is already insolvent or will become insolvent as a result of incurring the debt. The court may also disqualify an individual from being a director in certain circumstances, including for per - sistent failure to comply with relevant laws or for act - ing in a reckless or incompetent manner in the perfor - mance of the director’s duties, or upon conviction of certain offences or crimes involving dishonesty. In the course of a liquidation of the company, liqui - dators, creditors and shareholders also have limited powers to apply to the court to order a director (or a promoter, manager, administrator, liquidator or receiv - er) to repay or restore money or property under Sec - tion 301 if that person has: • misapplied, retained, or become accountable for that money or property; or • been guilty of negligence, default or breach of duty or trust in relation to the company. 3.9 Other Claims/Enforcement Against Directors/Officers The key enforcement avenues that are generally applied in respect of corporate governance require - ments in New Zealand are described in 3.8 Breach of Directors’ Duties . However, there are other potentially relevant enforcement avenues, including the follow - ing. • The Financial Markets Authority (a regulator) may apply to the court for management banning orders that prohibit individuals from engaging in certain activities with regard to the governance and man - agement of companies.
• The Reserve Bank of New Zealand may remove directors of licensed insurers from their positions if it is not satisfied that they are fit and proper per - sons to hold those positions. It may also remove directors of banks if specific criteria are met. Limitations on Liability of Directors Section 162 of the Companies Act allows a company to effect insurance on behalf of – and to indemnify – its directors, subject to specific limits and exclusions. 3.10 Payments to Directors/Officers The board may authorise the payment of remuneration (or compensation for loss of office) and other benefits (eg, loans and guarantees) to directors, if it is satis - fied that any such action is fair to the company. Any director voting in favour must sign a certificate to this effect and setting out the reasonable grounds for their opinion. If these requirements are not satisfied, the director receiving the benefit is liable to the company for the payment or benefit unless they prove that it was fair to the company. For listed companies, the Listing Rules require direc - tors’ remuneration – and any increase to it – to be approved by ordinary resolution. Failure to do so is a breach of the Listing Rules and may result in enforce - ment action by RegCo (NZX’s independently governed regulatory arm). The CGC also recommends that listed companies have a remuneration committee to (among others) recommend the appropriate remuneration for directors for shareholder approval. Directors’ remuneration and other benefits must be entered in the company’s interests register, which must be made available for inspection by sharehold - ers. The CGC also recommends that listed issuers have a publicly available remuneration policy and fully dis - close director remuneration in the issuer’s annual report, including committee fees and benefits for any other services provided to the issuer.
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