Directors & managers

Directors exposed to liability

 

Boards and managers are expected to navigate far more regulatory demands than in the past. Alongside severe penalties for health and safety breaches, directors now face potential criminal sanctions for breaches of their good faith employment duty. 

"It is tempting to let compliance take a back seat. But today this is simply too risky." 

Peter Watts QC
Consultant Editor
Directors and Managers Law Made Easy

Record proper minutes to reduce risk

It may sound simple but as a director you must put the company’s interests ahead of your personal interests at all times. You could even face jail time if you deliberately act against the company’s best interests.

Get the complete guide for directors and managers in New Zealand

Directors and Managers Law Made Easy provides straightforward and practical guidance on the law that is relevant to the daily operations of an organisation from a director’s perspective. Available on subscription, the guide provides:

  • A detailed overview of legislation relating to directors' and managers' duties, including FAQs and case studies
  • A comprehensive set of tools to help directors and managers comply with their obligations and avoid common pitfalls
  • Ongoing updates and news on court cases and law changes that may impact your business

 

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Scrutinise expert advice

Directors can rely on experts, particularly if the advice is complex and beyond their field of expertise. However, they must take steps to ensure its accuracy and must not blindly rely on the advice.  

 

Be careful before gifting company property

Gifts are only permitted if the directors believe it is in the company’s best interests. Directors should always think about whether the gift could benefit the company. If there’s no clear benefit then the gift shouldn’t be made. If a gift is made, directors should record their reasons for the belief that it is in the company’s best interests.

How can you reduce your risk?

With Dacreed's online compliance training you can train directors, managers and staff on their compliance obligations to help protect you and your business from prosecution. Once completed, the training also enables you to demonstrate a lower risk profile to insurers. This results in lower premiums – saving you and your business money.

 

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Know the difference between risk and recklessness

It is acceptable to take risks, even high risks, provided that they are justified and in the company’s best interests. Risks are generally justified as long as the directors have a reasonable expectation that the company will still be able to continue to meet its obligations.

Reckless trading is where a director creates a substantial risk of serious loss to creditors. As a general guide, a substantial risk is generally any risk that has more than a 25% chance of occurring. There may be circumstances where a less than 25% chance is also a substantial risk, but a less than 10% chance would generally be considered negligible (and therefore not a substantial risk).

Exercise due diligence

Directors must exercise care, diligence and skill when making decisions. But what does this actually mean? Here are steps you can take:

  • Demonstrate familiarity with the company’s business and the risks it faces
  • Carefully understand the company’s financial position
  • Attend all board meetings, and hold as many meetings as necessary to carry out the functions required of directors
  • Exercise independent judgement on board decisions, and don't blindly follow the views of others
  • Supervise managers
  • Seek independent expert advice where necessary

You may be held to a higher standard of care, diligence and skill if you have special skills. For example, a CFO is likely to be held to a higher standard of care in relation to the company’s accounts and financial management.

Keep creditors updated

If a company runs into financial trouble, directors need to think particularly carefully before making any risky decisions. If a company is nearing insolvency, directors should take into account creditors’ interests. Directors should engage with creditors as early as possible to see if any arrangements can be made to restructure debt or defer repayments.

Put in place health and safety processes

The Health and Safety at Work Act 2015 imposes new obligations on “officers” to exercise due diligence. All directors and some senior executives are deemed to be “officers” under the Act.

Officers must exercise due diligence so that the business can ensure the health and safety of workers. Officers should put in place processes for complying with obligations and stay informed about operational risks. They should also ensure the business has necessary resources to ensure the wellbeing and safety of workers.

Train your staff on workplace health & safety

Make sure your board, managers, and employees are aware of their obligations and help you grow and maintain a safe workplace culture with Dacreed's online compliance training.

 

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