• Know How

    May 2017

Key Responsibilities and Duties for Directors

If you are a director of a company it is important to be aware of your duties and responsibilities under the Companies Act 1993. Of the many duties laid out in the Act, below are those we consider the most relevant to New Zealand’s directors.  

1. Duty to act in good faith and in the best interests of the company      

Directors are not expected make the correct decision all the time, however they need to be able to demonstrate that decision-making was made with good intention and in the best interests of the company.

2. Duty to avoid reckless trading

Directors cannot carry on a business in such a way that creates substantial risk to the company’s creditors. However, calculated risks are permitted, provided the company is able to bear any potential loss. Directors must also not agree to the company taking on an obligation unless they have reasonable grounds to believe that the company will be able to fulfil this obligation.

3. Company must remain solvent when approving major transactions

Before directors approve major transactions (such as a dividends or share purchases) the company must be able to abide by a two-step solvency test before and after the transaction. Additionally, they are required to monitor the company’s solvency between authorisation and execution of the transaction.

4. Director’s duty of care

Directors are expected to take an active interest in the affairs of the company, and you must exercise care, skill and due diligence when acting as a director. Directors are permitted to rely on employees and professional advice, but are expected to make sufficient inquiries before acting or relying on this advice.

5. Director’s interests

Where directors have, or may obtain, a financial benefit in a transaction, they must disclose their interest in the transaction as soon as they become aware of it. In most cases, this requirement can be addressed by maintaining an interest register.

6. Duty not to disclose, make use of or act on company information

Directors must not use confidential company information for personal gain. Disclosure of company information can only be done where it is required by law or for company purposes. This duty can extend after a director has resigned from their position as a director of a company.

Directors need to ensure that they are meeting all their obligations and are maintaining compliance with the Companies Act 1993.

For more information on your responsibilities as a director please contact your local BDO adviser.