New Zealand: Director Duties - what you need to know

Last Updated: 24 April 2018
Article by Michael Dickie and Stacey Williams


Given the current economic uncertainties, it is timely to consider the duties of company directors. The penalties for breaches can be harsh, and it is important to be aware of your responsibilities to the company, its shareholders, and third parties.

We address some commonly asked questions below.

Am I a director?
A company must have at least one formally appointed director. The Act contains a broad definition of a director, which includes people who are acting in a directors' role, even if not formally appointed.

In the shadows
Director's duties can apply to persons who are not formally appointed as directors. If you direct the company's business, act in the position of director, or if the board is required or accustomed to following your direction you could to be considered a director for the purposes of the Companies Act 1993.

Can I delegate my duties?
Subject to the company's constitution the board may delegate powers under the Companies Act 1993 to a committee of directors, another director or an employee of the company. Schedule 2 to the Companies Act sets out the powers that cannot be delegated.

The board that delegates the power is responsible for the exercise of the power by the delegate. The board will not, however, be responsible where the board believed on reasonable grounds that the delegate would exercise the power in conformity with the duties imposed by the Companies Act and the Company's constitution, and where the board has monitored the delegate's exercises of the power. It is therefore important that, directors monitor delegates continuously.

What are the key duties I need to know?

Statutory duties

The Companies Act 1993 sets out the following duties:

  • A duty to act in good faith and in the best interests of the company.
  • A duty to exercise powers for a proper purpose.
  • A duty to comply with legislation and the company's constitutional documents.
  • A duty to avoid reckless trading.
  • A duty not to agree to obligations that the director does not reasonably believe the company can fulfill.
  • A duty to act with the care, diligence, and skill that a reasonable director would exhibit.
  • A duty to disclose any conflicts of interest and declare any interest in a proposed transaction.

What degree of care, skill, and diligence must I exercise?

A director must exercise the care, diligence, and skill that a reasonable director would exercise in the circumstances, taking into account:

  • The nature of the company.
  • The nature of the decision.
  • The position of the director and the nature of the responsibilities undertaken by him or her.

The test is objective. However, these are subjective considerations. The position of the director is compared with directors in similar circumstances. The expectations of a director of a small closely held company are likely to differ from those of a director of a large publicly listed company.

It is important to note that you can breach a duty by failing to do something or 'letting' something happen. You must therefore ensure that you have a reasonable knowledge of what is happening within the Company at all times.

What is good faith and in a manner the director believes to be in the best interests of the company?
The test is subjective (what the director honestly believed to be right) however the courts also consider an objective test –that is, how a reasonable director would be expected to act in the circumstances.

Directors must consider the company as a whole – they must not ignore the interests of minority shareholders and must not act in the interests of only one class of shareholder in the company.

Subject to the terms of a company's constitution, a director who is interested in a transaction may vote on a matter relating to that transaction.

Transactions involving self-interest
Under the Companies Act, a director must disclose any interest in a transaction. Section 139 sets out the circumstances in which a director may be interested and includes a transaction where a director is a party to the transaction, or may receive a material financial benefit either personally or via a material financial interest in another party. The transaction may be able to proceed providing the required consents are obtained.

Failure to disclose an interest may lead to a transaction being set aside.

Insolvent Trading
Directors have a duty to prevent a company from trading whilst insolvent. A company is insolvent if it is not able to pay its debts as they become due.

What liabilities do directors face should they fail to comply with their obligations?

Civil liability
Shareholders can bring claims against directors for breaches of duty either themselves, or, where the duty was to the Company, a claim can be brought in the name of the Company via a derivative action. A Court order is needed for a derivative action.

The Court has wide powers to order relief, including ordering the director to repay money with interest and compensation payments.

Criminal liability
Under Section 138A of the Companies Act, directors can be criminally liable for serious breaches of the duty to act in good faith where the director acts in bad faith believing the conduct is not in the best interests of the Company, and knowing the conduct will cause serious loss to the company. There are some exceptions to this, however where an offence has been committed, penalties can be fines of up to $200,000.00 and prison terms of up to 5 years.

Do I have a defence?
You may have a defence against a claim for reckless trading if you can show that you have acted reasonably and relied on professional advice.

How can I be protected?
A company may, if permitted by its constitution, indemnify its directors in respect of liability to third parties, but not in respect of criminal liability or breach of the duty to act in good faith.

The Companies Act allows a company to provide insurance for directors in certain situations, as set out in Section 162 of the Companies Act. Again, liability for criminal acts cannot be insured against.

What other procedural matters do I need to understand?

Companies Register
The Companies Registrar maintains the online company records. Annual Returns must be filed every year, and the directors must ensure that the Companies Office records are kept up to date. Changes in directors or changes to a company director's details must by notified to the registrar within 20 working days of the change occurring.

Appointment of Directors
Subject to the constitution of the Company, generally directors are appointed by ordinary resolution of the shareholders. Directors of a company may have the power to appoint alternate directors.

Directors have an obligation to call at least one annual shareholders meeting (subject to the Companies Act and the Company's constitution if there is one). The Companies Act (subject to the Company's constitution) sets out the procedures for calling meetings and the procedures at the meetings.

Are there duties outside of the Companies Act?

The Resource Management Act 1991 governs the protection of the environment in New Zealand. A director of a company may be found guilty of an offence committed by an employee or agent where the act that constituted the offence took place with the authority, permission or consent of the director, and the director knew, or could reasonably be expected to have known that the offence was to be committed and failed to take all reasonable steps to prevent or stop it.

Health and Safety
Under the Health and Safety at Work Act 2015, directors have a duty to exercise due diligence to ensure that the company complies with its health and safety duties and obligations. These duties cannot be delegated. Directors will be personally liable if they breach their due diligence duty and can be penalised with hefty fines and/or prison sentences. Directors, therefore, must maintain sufficient knowledge of Health and Safety matters to ensure that their obligations are met.

Directors have an obligation to ensure that a company meets its tax liabilities. In a liquidation situation where it is established a director has breached a statutory duty, that director may be called upon to return funds to enable the company to meet its tax liabilities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions