NEW ZEALAND Law and Practice Contributed by: Graeme Quigley, Ashton Goatley and Erin Hickey, Webb Henderson
Mainzeal Implications The Supreme Court also noted the following implications arising out of the Mainzeal case: • directors have a continuing obligation to monitor the performance and prospects of the company; • where monitoring reveals the potential for substantial risk of serious loss to creditors or doubt as to whether there exists a continuing reasonable basis for the belief that obligations incurred will be able to be honoured, direc - tors should squarely address the future of the company; • directors may need to obtain independent expert advice and the courts will allow a rea - sonable time for directors to “take stock” and decide on a course of action; • directors must deal directly with the issues giving rise to the concern, recognising that a long-term strategy of trading while balance sheet insolvent is generally not acceptable; and • courts will apply a standard of reasonable - ness when assessing directors’ decisions, noting that: (a) these decisions are likely to involve the exercise of business judgement; and (b) directors are often required to make complex decisions under the pressure of time with incomplete knowledge despite their best efforts, and the courts will avoid “hindsight bias” (ie, will recognise that reasonable decisions may nonetheless turn out badly and there may be more than one reasonable course of action). 4.7 Responsibility/Accountability of Directors All the directors’ duties described in 4.6 Legal Duties of Directors/Officers are owed to the company, rather than to shareholders. A limited
believe that the company would be able to per - form the new obligations). Section 137 – Duty of Care A director of a company, when exercising pow - ers or performing duties as a director, must exercise the care, diligence and skill that a rea - sonable director would exercise in the same circumstances – taking into account (without limitation) the nature of the company, the nature of the decision, and the position of the director and the nature of the responsibilities undertaken by them. This section does not automatically impose a higher standard of skill on directors who hold professional qualifications in a particular area. The position may, however, be different if a director is brought onto the board to add a par - ticular skill set. Section 138 – Use of Information and Advice The Companies Act expressly permits directors, when exercising powers or performing duties, to rely on reports, statements, financial data, pro - fessional and expert advice, and other informa - tion provided by: • those (including employees, professional advisers and experts) whom the director reasonably believes to be competent in the relevant area; and • fellow directors (or directors’ committees on which the director did not serve) in relation to matters within those directors’ or committees’ designated authority. In each case, the director must act in good faith, have no knowledge that such reliance is unwar - ranted, and make proper inquiry where the need for inquiry is indicated by the circumstances.
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