{"id":202472,"date":"2021-02-16T16:10:57","date_gmt":"2021-02-16T03:10:57","guid":{"rendered":"https:\/\/legalvision.co.nz\/?p=202472"},"modified":"2024-05-16T19:56:48","modified_gmt":"2024-05-16T06:56:48","slug":"directors-duty-of-care","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/corporations\/directors-duty-of-care\/","title":{"rendered":"Directors\u2019 Duty of Care in New Zealand"},"content":{"rendered":"\n<p><span style=\"font-weight: 400;\">A company director is responsible for managing a company&#8217;s business and everyday affairs. If you are a company director in New Zealand, you must comply with your legal duties. This article explains some of your duties as a company director, specifically your duty of care.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">What is a Director\u2019s Duty of Care?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">A director of a company is legally required to exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances. In evaluating what degree of care is required, a director must take into account the following (non-exhaustive) matters:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">the nature of the <a href=\"https:\/\/legalvision.co.nz\/employment\/business-pcbu\/\">company<\/a> and its risks;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">the nature of the decision in question; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">bringing an informed and independent judgement of matters before the board.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400;\">In addition to the above, directors cannot rely unquestioningly on the judgement of others, including their fellow board members and executive management team. To properly exercise the diligence of a reasonable director, it is imperative that you:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">remain informed regarding the dealings of your company, including by attending all meetings;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">undertake inquiries where necessary into dealings or issues in the company; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">seek competent advice from independent experts where it is appropriate or prudent to do so.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">What Happens if a Director Breaches This Duty of Care?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">As a director, if you fail to uphold this duty of care, you may face a civil liability claim. However, you cannot be criminally liable for breaching your duty of care.&nbsp;<\/span><\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400;\">You should note that you owe a duty of care to your company, not to any individual shareholders. Therefore, the shareholders could not bring a claim against you. Instead, shareholders would need to bring a claim in the name of your company.&nbsp;<\/span><\/p>\n<\/div>\n\n\n\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+64800005570\" class=\"not-prose\">0800 005 570<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one business day.\n                    <\/span>\n    <\/div>\n\n    \n\n<div class=\"not-prose flex justify-center text-left gform_input_bg_white    \">\n    <script>\nvar 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As a company director, you likely receive little to no training for your role. Likewise, there is no universal guidebook on being a reasonable director.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400;\">When evaluating whether you upheld your duty of care to the standard of a reasonable director, a court will use a partially objective, partially subjective test. This test considers what an ordinary person with an ordinary degree of prudence, might be expected to do in those circumstances. Further, a court assesses your actions against that of a reasonable director. A court will only compare a director\u2019s conduct with another if the two were in identical circumstances.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Other Directors\u2019 Duties<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">As a company director, you are also subject to <\/span><a href=\"https:\/\/legalvision.co.nz\/corporations\/directors-duties\/\"><span style=\"font-weight: 400;\">other duties<\/span><\/a><span style=\"font-weight: 400;\"> alongside this duty of care.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Act in Good Faith<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">You must act in <\/span><a href=\"https:\/\/legalvision.co.nz\/employment\/good-faith-obligation\/\"><span style=\"font-weight: 400;\">good faith<\/span><\/a><span style=\"font-weight: 400;\"> in what you believe to be your company\u2019s best interests. Notably, y<\/span><span style=\"font-weight: 400;\">ou can be criminally liable if you, in the performance of your duties and powers:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">act in bad faith towards the company;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">believe that the conduct is not in the best interests of the company; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">know that the conduct will result in serious loss to the company.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Proper Purpose<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">A company director must also exercise their powers for a proper purpose. Regardless of whether you believe that you are acting in the company\u2019s best interests, you must not exercise your powers for a purpose other than what the power was conferred for.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Keep Information Confidential<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">A director who gains information in their capacity as a director or employee of the company must keep this information confidential. As such, they must not disclose this information to any other person. The exception to this is if the disclosure is:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">required by law;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">for the purposes of the company; or\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">authorised by the board.\u00a0\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Comply With Legislation and Company Documents<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">As a director, you must comply with the <\/span><i><span style=\"font-weight: 400;\">Companies Act 1993<\/span><\/i><span style=\"font-weight: 400;\"> and the <\/span><a href=\"https:\/\/legalvision.co.nz\/business-structures\/what-is-a-company-constitution\/\"><span style=\"font-weight: 400;\">company\u2019s constitution<\/span><\/a><span style=\"font-weight: 400;\"> when performing your duties. You owe this duty to both the company and the shareholders.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Not Engage in Reckless Trading<\/span><\/h3>\n\n\n\n<p><span style=\"font-weight: 400;\">Additionally, you must not cause or allow your business to trade in a way that creates a substantial risk of serious loss to company creditors. Such actions would include:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/legalvision.co.nz\/corporations\/trade-whilst-insolvent\/\"><span style=\"font-weight: 400;\">trading whilst the company is insolvent<\/span><\/a><span style=\"font-weight: 400;\">; or<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">trading whilst the company is close to insolvency.\u00a0<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400;\">Similarly, a director must not agree to the company taking on new obligations unless they reasonably believe that the company can carry out these obligations when it is required to do so.<\/span><\/p>\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/2\/2021\/10\/28131832\/how-to-sell-your-business-guide-_-560x792-1-e1635392481928.png\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">How to Sell Your Business in New Zealand<\/div>\n            <div class=\"body-text\">\n                <p>Looking to sell your business? This free guide will help you to understand the moving parts that impact a successful sale. <\/p>\n            <\/div>\n            \n\n<a href=\"https:\/\/go.legalvision.co.nz\/guide-to-selling-your-nz-business.html\" class=\" block px-5 py-3.5 max-w-fit bg-orange button__hover transition rounded text-white font-bold text-lg no-underline uppercase leading-tight text-center\" target=\"\" rel=\"\">Download Now<\/a>        <\/section>\n    <\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">As a company director, you play an integral role in ensuring that your company operates effectively and efficiently. Likewise, there are certain duties you must follow. These duties are to:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">exercise the care, skill and diligence that a reasonable director would exercise in the same circumstances;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">act in good faith and in the best interests of the company;<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">exercise their powers for a proper purpose;\u00a0<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">comply with company law and your company\u2019s constitution; and<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">not engage in reckless trading.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span style=\"font-weight: 400;\">If you need advice about your directors\u2019 duties, our experienced <\/span><a href=\"https:\/\/legalvision.co.nz\/corporate-lawyers-lp\"><span style=\"font-weight: 400;\">corporate lawyers<\/span><\/a><span style=\"font-weight: 400;\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+64800005570\" class=\"AVANSERnumber dynamic-number\">0800 005 570<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.nz\/membership\/\"><span style=\"font-weight: 400;\">membership page<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400;\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1613444410632\"><strong class=\"schema-faq-question\"><strong>What are the responsibilities of a company director?<\/strong><\/strong> <p class=\"schema-faq-answer\">A company director is responsible for managing the company\u2019s business and affairs.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1613444459187\"><strong class=\"schema-faq-question\"><strong>What is the directors\u2019 duty of care?<\/strong><\/strong> <p class=\"schema-faq-answer\">In the performance of their work, a company director must exercise the care, skill and diligence that a reasonable director would exercise in the same circumstances.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1613444509031\"><strong class=\"schema-faq-question\"><strong>What is a reasonable director?<\/strong><\/strong> <p class=\"schema-faq-answer\">A director will perform their duty of care to the standard that a reasonable director would have if they did what an ordinary person, or a person with an ordinary degree of prudence, might be expected to do in those circumstances.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"90c4126e1b\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/202472\" \/>            <input value=\"https:\/\/legalvision.co.nz\/corporations\/directors-duty-of-care\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"Directors\u2019 Duty of Care in New Zealand\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>A company director is responsible for managing a company&#8217;s business and everyday affairs. If you are a company director in New Zealand, you must comply with your legal duties. This article explains some of your duties as a company director, specifically your duty of care. What is a Director\u2019s Duty of Care? A director of<a href=\"https:\/\/legalvision.co.nz\/corporations\/directors-duty-of-care\/\">Continue reading <span class=\"sr-only\">&#8220;Directors\u2019 Duty of Care in New Zealand&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13343,"featured_media":201783,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"1639,1288,202036,625,1205,1957","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[14],"tags":[54,223,475,498,545,894],"class_list":["post-202472","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-medium-business","tag-company-constitution","tag-duty-of-care","tag-company-director","tag-directors-duties","tag-large-business"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Directors\u2019 Duty of Care in New Zealand | LegalVision New Zealand<\/title>\n<meta name=\"description\" content=\"Directors owe certain duties to their company, including a duty of care. 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