What are directors’ duties?
It’s a common experience across all levels of directorship - from single director/shareholder companies to larger corporate boards - to ask what it means to be a "director”. This includes questions around how to act in uncertain times such as under Covid-19 or when a company is financially strained.
When you agree to become a director, you accept that you will be acting as a fiduciary (a trusted hand) of the company and its shareholders. In this role, directors are responsible for managing, directing or supervising the business and affairs of the company. Under that broad umbrella of responsibility, directors are subject to more particular fiduciary duties that apply whenever they exercise their powers or perform their duties as directors. The fiduciary duties are largely codified in the Companies Act. There are other legislative duties that also apply - for example, health and safety and of administrative nature.
Directors must know what these duties are.
Not knowing, or failing to discharge, these duties correctly can have devastating personal consequences. This is even though companies are meant to enjoy a “limited liability” status, where shareholders are not personally liable for any debts or obligations of the company. The negative outcomes for directors have come up repeatedly in high profile cases such as the Mainzeal case and the Debut Homes case.
This summary checklist has been prepared to help with understanding the directors’ duties. When making company decisions, we encourage directors to use the checklist to make sure that they have turned their minds to the relevant fiduciary duties and so as to help avoid personal liability that may attach.
If you have any questions or comments regarding this publication, please get in touch with your normal contact at JW Legal or get in touch with Josh Woo (e: josh.woo@jwlegal.co.nz | p: +642102938699).
Disclaimer
This publication should not be construed as legal advice. It is necessarily brief and general in nature. Please seek professional advice before taking any action in relation to the matters discussed in this publication.
