The Companies Act 1993 and Directors’ Duties: Small and medium entities are not well catered for

Abstract

In 1993 New Zealand passed into law the Companies Act. The Act was a combination of work done by the New Zealand Law Commission and the Justice Department. It was anticipated that the Act would provide all the information necessary to enable a prospective director to understand what was required in incorporating and winding up a company, as well as the requirements to be met whilst doing business using that form. This paper contends that the Act does not contain the Law Commission’s original intentions in terms of directors’ duties, compliance with which is argued to be the quid pro quo of the right to incorporate, where the company is a small or medium entity. The paper further contends that amendments to the Act are necessary to take account of the needs of small and medium entities and suggests possible amendments, in light of case law emphasising the need for directors to maintain a company’s solvency, where failure to do so can trigger personal liability for directors.