Directors Responsibilities

The need for directors and executives to understand fully their duties and responsibilities may seem obvious. However, evidence brought before our Courts continues to highlight that many are not aware of the duties and responsibilities their position carries.

It is important for directors to have guidance because of the many onerous duties imposed on directors by the law.

Who is a director?
The Companies Act 1993 defines a director as a person occupying the position of director of the company by whatever name called. The term includes any individual who:

  • Is required or is accustomed to instructing the Board on what to do; or
  • Exercises powers normally reserved for the Board of Directors; or
  • Exercises powers or duties delegated by or with the consent of the Board.
    In particular circumstances the following may be defined as “deemed directors”:
  • Shareholders who take an active role in running the business or in the decision making process
  • Company executives
  • Employees delegated duties or powers by the Board
  • Consultants and advisers acting beyond professional capacity.
It is your actions rather than your title that determines whether you are a director.

Some important director responsibilities
It is not possible to list all the director responsibilities here but some that are particularly relevant to a Clever Company director include:
  • Preparing and issuing the annual report within five months of balance date
  • Ensuring financial statements comply with generally accepted accounting practice (GAAP) in New Zealand
  • Issuing signed solvency certificates whenever there are planned distributions
  • Ensuring the company does not carry out business in a manner which is likely to create substantial risk or serious loss to creditors and shareholders
  • Ensuring that the company does not incur an obligation unless there are reasonable grounds that the company can meet the obligation
  • Certifying that directors’ remuneration is fair to the company.
    More general duties imposed on directors include:
  • Acting in good faith and in the best interest of the company;
  • Exercising your powers for a proper purpose
  • Exercising due care in performing your duties
  • Avoiding conflict of interest.
There are stiff civil and criminal penalties provided for breaching directors responsibilities. For example, the director can be personally liable for company debts where the company has failed to keep proper accounting records. The maximum penalty for a director who knowingly makes a false or misleading statement about the affairs of the company to a shareholder, employee or debenture holder is five years imprisonment or a $200,000 fine. Failure to file an annual return within the time required can result in a maximum fine of $10,000.

Directors are faced with increasingly difficult business environments with an ever increasing number of responsibilities. Being a director exposes an individual to significant penalties and liabilities. Directors need guidance to navigate the complex demands on their position and to ensure their legal duties are properly discharged and to manage the risk to them as an individual.

Traditionally, a directorship has been seen as an honorary position but that is not true anymore. The duties imposed on directors by the law are many and the penalties stiff. Caution should be taken before accepting a position as a director. Consideration should be given to whether you can fulfil the duties imposed on you. Do you know the Board and management well? What do you know about the company’s business?

We are able to assist you with assessing your existing directorship or evaluating a potential directorship. Contact us for more information on directors responsibilities.

Auckland: David Dorrington - (09) 355 8301
Napier: Giles Pearson - (06) 835 6144
New Plymouth: Pauline Lockett - (06) 757 5477
Wellington: Graham Archer - (04) 462 7271
Christchurch: Paul Lynskey - (03) 374 3010
Dunedin: Richard McKnight - (03) 477 8784