NEW ZEALAND Law and Practice Contributed by: Ian Beaumont, Tom Gillespie and Sam Kember, Russell McVeagh
booklet or its material terms summarised within it. In practice, NZX-listed targets will also release copies of, or detailed summaries of, the definitive transac - tion documents to the market via NZX announce - ments at or around the time the transaction is publicly announced.
of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors. This duty is mainly applicable when the company is in circumstances of uncertain solvency. • Duty not to incur obligations that cannot be met: Directors must not agree to the company incur - ring an obligation unless the directors reasonably believe that the company will be able to perform the obligation when it is required to do so. This duty is particularly relevant if the company is in financial difficulty, or if the company is asked to guarantee obligations of other group members where the liability being guaranteed is, or could be, significant when compared with the assets of the company giving the guarantee. • Duty to exercise care, diligence and skill: Directors, when exercising powers or performing duties as a director, are required to exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances. However, the Compa - nies Act provides that the nature of the company, the nature of the decision concerned, the position of the director and the nature of the responsibili - ties the director has undertaken may be taken into account in determining whether the director has discharged this duty. Directors are required to exercise only the degree of care expected of a reasonable director, regardless of any special skills or knowledge that the director may have (or may lack). • Duty to disclose interests: Directors must disclose any interest in a transaction or proposed transac - tion with the company. This is particularly impor - tant in a business combination where a director may have a personal interest in the outcome. 8.2 Special or Ad Hoc Committees Boards frequently establish special or ad hoc com - mittees in connection with business combinations. This is a well-established feature of market practice, particularly in public M&A transactions. Special committees are most often used where con - flicts of interest arise. If one or more directors have an interest in the transaction (for example, because of links to the bidder or a significant shareholder), those directors are required to disclose their interests and
8. Duties of Directors 8.1 Principal Directors’ Duties
Directors of New Zealand companies owe duties under the Companies Act and at common law. Direc - tors’ duties are owed to the company not directly to individual shareholders. The principal duties relevant in a business combination context are the following: • Duty to act in good faith and in the best interests of the company: Generally, directors must ensure that, when exercising their powers or performing their duties, their actions are taken honestly and in a manner which they reasonably believe will be in the best interests of the company. The court will assess this subjectively, taking into consideration whether the director acted in good faith (which has been determined to be acting honestly and with proper motives) and in the genuine belief that the action was in the best interests of the company. • Duty to exercise powers for a proper purpose: Directors must exercise their powers in accordance with the purpose for which they were granted, not any collateral purpose. This means directors must be mindful of their duties whenever exercising powers, especially in respect of any related-party transactions or other transactions where there may be a conflict of interest. Where there are mixed motives (proper and improper), the court will look to determine the substantial motive. • Duty to comply with the company’s constitution and the Companies Act: Practically, this means that directors should be aware of their obligations under the constitution and Companies Act more broadly. Some of the Companies Act obligations can be altered by the specific constitution of the company, so maintaining an obligations register is a helpful way to keep track of obligations. • Duty not to engage in reckless trading: Directors must not agree to or cause or allow the business
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