NEW ZEALAND Law and Practice Contributed by: Graeme Quigley, Ashton Goatley and Erin Hickey, Webb Henderson
tor can apply to the court for leave to bring an action on behalf of the company in the above- mentioned manner. Consequences Breaches of the above-mentioned directors’ duties generally attract civil liability (although a number of the administrative provisions of the Companies Act attract criminal liability). The fol - lowing are two key exceptions. • 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 com - pany, and knows that the conduct will cause serious loss to the company. “In short, the offending requires dishonesty” (see Spence v R [2021] NZCA 499 at [36]). • Section 380 creates an offence for dishon - estly failing to prevent a company from incur - ring 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, includ - ing for persistent failure to comply with relevant laws or for acting in a reckless or incompetent manner in the performance of the director’s duties, or upon conviction of certain offences or crimes involving dishonesty. In the course of a liquidation of the company, liquidators, creditors and shareholders also have limited powers to apply to the court to order a director (or a promoter, manager, administrator, liquidator or receiver) to repay or restore money or property under Section 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. 4.9 Other Bases for Claims/Enforcement Against Directors/Officers The key enforcement avenues that are gener - ally applied in respect of corporate governance requirements in New Zealand are described in 4.8 Consequences and Enforcement of Breach of Directors’ Duties . However, there are other potentially relevant enforcement avenues, including the following. • The Financial Markets Authority (a regula - tor) may apply to the court for management banning orders that prohibit individuals from engaging in certain activities with regard to the governance and management of compa - nies. • 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 persons to hold those posi - tions. 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 com - pany to effect insurance on behalf of – and to indemnify – its directors, subject to specific lim - its and exclusions. 4.10 Approvals and Restrictions Concerning Payments to Directors/ Officers The board may authorise the payment of remu - neration (or compensation for loss of office) and provision of other benefits (eg, loans and guar - antees) to directors. However, before doing so, the board must be satisfied that any such action
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