Superfluous or Superlative: The Role of Reckless/ Insolvent Trading prohibitions in New Zealand, Australian and South Africa Directors’ Duties Regimes

Abstract

Under ss 135 and 380(4) Companies Act 1993 (NZ), s 588G Corporations Act 2001 (Cth) and s 22 Companies Act 2008 (SA) directors' have a duty not to engage in reckless trading (in the case of New Zealand and South Africa) and insolvent trading (in the case of New Zealand and Australia). Under s 137 Companies Act 1993 (NZ), s 180 Corporations Act 2001 (Cth) and s 76(3)(c) Companies Act 2008 (SA) directors have a statutory duty of care. In each jurisdiction the latter statutory duty stands side by side with the complimentary common law duty of care. The reckless/insolvent trading provisions have no common law equivalent. This paper asks the question, are these reckless / insolvent trading provisions an unnecessary duplication in light of the common law and statutory duties of care and skill? Both duties provide remedies when breached. Is it necessary to provide a remedy for a breach of both the reckless/insolvent trading provisions and the duty of care and skill when either of the two would suffice? While there is a significant overlap in each jurisdiction, it is ultimately concluded that the reckless / insolvent trading provisions play an important additional role. In the context of the reckless / insolvent trading provisions the director’s must shift their focus from the shareholders’ to the creditors’ interests. While the duty continues to be owed to the company, reflecting this concern with safeguarding creditors’ interests, at times statutory relief is also extended to creditors. Arguably this focus on creditors’ interests in times of doubtful solvency plays an important part in ensuring directors adequately monitor corporate solvency