Are You Keeping (a) Good Company? 07 Dec 2011
Jet setting, power lunching, deal clinching tycoons. This is how many people perceive company directors, whose every move seems to be splashed across the daily papers. But the reality is that most company directors are Joe & Jane Average, and perhaps their children, Jack and Jill Average, who own and run small, closely held, businesses. Parry Field Lawyers provide legal advice on a range of commercial matters including managing your company.
Companies Act Duties
The fact that most directors operate outside of the public eye does not exempt their actions from the same scrutiny as their more prominent counterparts. New Zealand's Companies Act 1993 imposes exacting duties on all directors, with the result that the following excuses may no longer hold water if and when things go wrong:
I'm only a director by name - Barry makes all the decisions and runs the place. Silent or "sleeping" directors may not be able to claim ignorance under the Act. It is essential that directors are familiar with the ins and outs of the business, including reading the accounts and attending board meetings.
I usually just sign the cheques in blank - I know I can trust Mary. This could be a breach of a director's duty of care and skill should funds subsequently be misappropriated.
I'm too busy doing real work to worry about all this form-filling. The Act imposes penalties of up to $10,000.00 for failure to keep records as basic as the share register - these can be imposed on directors as well as the company.
But I haven't even heard of the Health and Safety in Employment Act. Don't just be content with satisfying the requirements of the Companies Act - many other Acts carry penalties directly applicable to directors.
The upshot of these examples is that the company (or a liquidator in the company's liquidation) and, in some instances, creditors, may seek to hold a director personally liable for the company's losses if they breach their statutory duties. If successful, this removes the umbrella of personal protection a company gives - often a major reason companies are used in the first place.
Therefore, it is essential that, as a director, you are aware of your obligations and the records a company is required to keep. If you are in any doubt as to whether your conduct (or that of your fellow directors) is sufficient to comply with the Act, or whether you should be acting as a director at all, you should seek professional advice.