Abstract:
This article considers recent measures to criminalise serious breaches of two directors’ duties, namely s 131 of the Companies Act 1993 (the duty of act in good faith and in the best interests of the company) and s 135 of the Act (reckless/insolvent trading). The Companies Amendment Act 2014 introduces two new offences contained in ss 138A and 380(4) of the principal Act. Under s 138A(1) criminal liability will follow for a breach of the duty to act in good faith when the director acts in “bad faith”, “believing that the conduct is not in the best interests of the company” and “knowing” that the conduct will cause “serious loss to the company”. Under s 380(4) criminal liability for reckless/insolvent trading will arise when the director “knows” that the company is insolvent or that the debt will render the company insolvent and the failure to prevent the company incurring the debt is “dishonest”. The director will in turn face the penalties set out in s 373(4) of the Act, namely five years imprisonment or a fine of up to $200,000. In addition, as a breach of these duties will now constitute an offence, the automatic ban from management for five years under s 382 of the Act will apply. Ultimately, it is submitted, that while the changes are to be applauded, they do not go far enough. In particular it is suggested that criminal breaches should not be confined to these two directors’ duties. The article also suggests these changes would be complemented by the introduction of a civil penalty regime as in Australia. To date this has been rejected by the New Zealand reform bodies. However, the author suggests reconsideration is warranted as this would provide the Financial Markets Authority with another useful weapon in its armoury, particularly when breaches are not serious enough to attract criminal liability.